MANAMA: Standard and Poor’s has revised Qatar’s rating to negative saying that the negative outlook reflects the risk that Qatar’s external position could deteriorate further should the rapid growth in external debt continue to outpace external liquid asset growth, thereby reducing the buffer provided by its sizable external assets.
It says Qatar’s external liquidity position has weakened with the rapid growth of banks’ foreign liabilities and public sector debt, which has pushed up the country’s external financing needs. Qatari banks’ external liabilities increased sharply by 24 percentage points of GDP over 2016, with nonresident deposits in particular increasing by 17 percentage points of GDP. Public sector external debt also grew by some 14 percentage points of GDP over 2016, reflecting government deficit financing. We now estimate liquid external assets to exceed external debt by 100% of current account receipts (CARs) and gross external financing needs at 167% of CARs plus usable reserves, compared with 147% and 146% respectively in our last publication in September 2016.
“We subtract Qatar’s monetary base from usable reserves, which we view as consistent with maintaining confidence in a pegged currency. We view the growth of nonresident deposits partly as a response to the slower growth in domestic funding over the past few years, reflecting the lower profitability of oil and gas companies. To offset this stasis, and in support of foreign expansion plans, Qatari banks have attracted foreign deposits both from the region and also Europe. However, liquid foreign assets have not grown in tandem with foreign banking sector liabilities. This has changed the structure of Qatar’s external balance sheet, with coverage of liquid external assets over external debt reducing. Central Bank data indicate that less than half of the increase in foreign liabilities over 2016 were lent abroad. Domestic banks’ exposure to the government and 100% government-owned entities increased by roughly 10 percentage points of GDP in 2016. We understand that these nonresident deposits have an average duration of six months, which could also pose a financing risk if incentives for depositors were to reverse suddenly without an offsetting inflow. Future growth of nonresident deposits at a similar pace to 2016–and absent an offsetting increase in liquid external assets–would likely put pressure on the ratings. Still, we view this deterioration in the context of very substantial external assets and, while it is incrementally weaker, we still regard Qatar’s external stock position to be a key strength,” it added.