The Daily Update - Qatar

Encouragingly, recent data releases have shown an improving trend in Qatar’s fiscal deficit position. Fitch note the Qatar Central Bank’s (QCB) preliminary estimate for 9 months to the end of September 2017 shows a fiscal deficit of QAR24.7bn (5.5% of GDP during the period), an improving trend from a 9% deficit in 2016 (full year). Importantly, QCB estimates exclude income from the Qatar Investment Authority (QIA). Fitch expects their headline measure of Qatar’s fiscal deficit (which includes income from the QIA) to improve to 2.5% of GDP in 2017 from 5.1% of GDP in 2016, helped by an improved oil price environment. We would expect Qatar’s fiscal position to continue to improve into 2018: the Qatar state budget projects a deficit of QAR28.1bn in 2018 (ex QIA income) down from a projected QAR28.4bn for 2017 but it assumes a conservative oil price of $45/barrel; so the actual outcome could well be better than this.

Qatar’s strong net external asset position has enabled it to weather the lower oil price environment post 2014 and the impact of any capital outflows during the 2017 Saudi Arabia-Qatar spat. S&P estimate that in 2017 outflows of non-resident funding from the Qatar banks amounted to USD22bn but that Qatar offset this by repatriating USD43bn (26% of GDP) worth of public sector (mainly QIA) assets. Diplomatic relations between Saudi Arabia and Qatar remain strained, however, importantly the situation has not escalated. The Qatar sovereign remains rated Aa3/AA-/AA- by Moody’s/S&P/Fitch reflecting its asset strength, although the geopolitical risk is reflected in a negative outlook by all rating agencies.

At current levels we think Qatar remains a compelling investment opportunity. For example, Qatar 6.4% 2040 (rated Aa3/AA- by Moody’s/S&P) trades at a yield of 4.77% and offers  over 5 credit notches cushion according to our models, suggesting much of the risk has already been factored in.

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