A strong external position on the back of persistent current account surpluses — which have averaged 21.2% of GDP between 2005 and 2014 — have directly contributed to Qatar’s international reserves and mitigates the country’s exposure to external risks, Moody’s says.

By Santhosh V Perumal
Business Reporter

Qatar’s external vulnerability indicator (EVI), which compares the sum of short-term and currently maturing long-term external debt to available foreign exchange reserves, is high at an expected 219% in 2015, according to global credit rating agency Moody’s.
The high EVI was rather high as Moody’s did not include the Qatar Investment Authority’s (QIA) assets in the calculation of foreign exchange reserves.
“Including our estimates for QIA’s assets, the 2015 EVI stands at about 31%,” the rating agency said in its latest report.
A strong external position on the back of persistent current account surpluses — which have averaged 21.2% of GDP (gross domestic product) between 2005 and 2014 — have directly contributed to the country’s international reserves and mitigates the country’s exposure to external risks, it said.
“For 2015, we project a significantly smaller current account surplus of only about 5% of GDP, which will likely turn into a small deficit in 2016, on account of a weakening of exports from lower oil prices and increasing imports commensurate with the government’s ambitious infrastructure development programme,” it said.
According to the International Monetary Fund, Qatar’s external breakeven oil price is among the lowest in the region, projected at $46.1 per barrel in 2015 and $58.6 in 2016.
Finding that the rise in Qatar’s external debt in recent years — reflecting in part heavy investments in the hydrocarbon sector — has not led to a material deterioration in reserve adequacy; it said “overall, we estimate that the country’s total external debt was equivalent to around 80% of GDP as of end-2014, which remains manageable in the context of sizeable external assets, such as the QIA, and is down from almost 85% of GDP in 2012.”
The report also found that general government debt climbed from a low of around 8% of GDP in 2007 to close to 33% in 2014, higher than the median for ‘Aa’-rated peers.
Much of the increase was incurred through liquidity management operations by the central bank, which has been issuing government T-bills (treasury bills) in local currency in order to absorb liquidity from the banking system.
The government also incurred debt to help finance extra-budgetary assistance of the banking system and various state-owned enterprises in the midst of the global financial crisis, the agency said, adding the remaining debt is composed of debt issued by the government to create a yield curve for state-owned enterprises.
While Qatar’s debt-to-GDP ratio is higher than the median for ‘Aa’-rated peers, it is significantly lower than for the UK and France, and at comparable levels to China and Korea. In addition, interest outgo as a share of government revenues — a measure of debt affordability — are in line with the median for the Aa-rated sovereigns, it said.
Highlighting that the accumulation of government financial assets provide a “significant buffer”; it said incorporating official foreign exchange and sovereign wealth fund assets, “we estimate that the government maintains a strong net creditor position.” However, Moody’s found high non-financial public debt. According to the Ministry of Finance, total debt of the largest non-financial public enterprises (NFPEs) amounted to about $69.5bn in fiscal year 2014, or roughly 33% of GDP.
“Given the government’s track record of extensive support to this sector, the large size of NFPE debt poses a degree of contingent risk to the government’s balance sheet,” Moody’s said.
However, the general health of the sector — as implied by the continued transfers to the government in the form of investment income — mitigates such risks, it added.
In addition, the government has taken steps to improve management of wider public sector debt, led by the Ministry of Finance.
For instance, all state-owned companies have to seek approval from the Ministry of Finance before undertaking any borrowing, and NFPE debt has already been reduced compared to previous years.