OREANDA-NEWS. Fitch Ratings has published Qatar's Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'AA'. The Outlooks are Stable. Fitch has also published the Short-term foreign currency IDR of 'F1+' and Country Ceiling of 'AA+'.

KEY RATING DRIVERS
Qatar's 'AA' IDRs reflect the following key rating drivers:

Qatar's very strong external balance sheet is a key support to the ratings and provides significant resilience to the fall in oil prices that has occurred since mid-2014. Exceptionally high per capita hydrocarbon production has generated current account surpluses in excess of 20% of GDP in each of the past 15 years. Fitch expects the surplus to decline to high single digits due to lower oil prices. Large surpluses have allowed the rapid accumulation of sovereign net foreign assets, which are estimated at 130% of GDP at end-2014, the fourth highest of all Fitch-rated sovereigns.

The net external creditor position is below peers, at 21% of GDP in 2014, reflecting the debt of government-related enterprises (GRE) that was accumulated during an earlier debt-financed development strategy. External debt/GDP peaked in 2010 at 87.9% of GDP and is forecast to fall throughout the forecast period as the government is expected to repay all maturing debts and borrowing by government-related enterprises (which totals around 30% of GDP) faces greater oversight. Debt management has been strengthened by the creation of a Debt Management Office in the Ministry of Finance which approves all issuance by the government and GREs.

Qatar is expected to record its 15th consecutive fiscal surplus in 2014/15 (FY15; to end March), at an estimated 11.5% of GDP. Fitch estimates a fiscal breakeven oil price of USD54/b for FY14; excluding capital spending it drops to USD32/b. Falling hydrocarbon revenues and high spending are forecast to almost eliminate the fiscal surplus in FY16. Debt/GDP is below peers but well above that of other highly-rated GCC countries. Fiscal transparency has improved due to a rationalisation of financial transactions between Qatar Petroleum and the government, but remains a weakness relative to rating peers.

Economic growth is very strong, driven by implementation of a capital spending programme of around 100% of 2014 GDP over the next eight years. The authorities are committed to the huge infrastructure plans ahead of the FIFA 2022 World Cup and Fitch assumes the tournament will go ahead. Project momentum will keep non-hydrocarbon growth close to double digits in 2015 and 2016 but potentially limits fiscal flexibility compared with GCC rating peers. Headline growth will be lower, due to the completion of the ramp-up in LNG production in 2011.

Economic institutions are being strengthened. Debt Management, Macro-Fiscal, Research and Public Investment Management Units have been created in the Ministry of Finance and a medium-term expenditure framework is being introduced. Nonetheless, these functions are nascent in comparison to peers and capacity to implement the huge infrastructure build effectively is unproven. Limited economic policy tools potentially hinder the authorities' ability to respond to serious energy price volatility. Fitch considers the exchange rate peg to the US dollar a key policy anchor, even though it constrains policy flexibility and has resulted in inflation and real effective exchange rate volatility that is well above peers.

Qatar achieved its first smooth post-independence transition of power in 2013, pointing to a greater robustness of political institutions. The new Emir has adopted a more domestically-focussed policy agenda and toned down Qatar's foreign policy, allowing the closure of a rift with other GCC members.

The economy is heavily dependent on hydrocarbons. Oil and gas account for around 85% of fiscal revenues and current external receipts and spending of hydrocarbon revenues is a key driver of the non-hydrocarbon economy. Prices of the bulk of LNG production are linked to crude. However, Qatar has the third-largest reserves of gas in the world and is a low cost producer. Around 80% of LNG exports are under long-term contracts, the earliest of which expires in 2021.

Structural indicators are mixed relative to peers. Qatar has among the highest GDP per capita of all Fitch-rated sovereigns due to its very high per capita hydrocarbon production. Governance indicators are in line with peers, according to World Bank measures, although voice and accountability is considered a significant weakness. In common with most other highly rated GCC sovereigns, human development and ease of doing business rankings are below the peer median. Availability of data is weaker than peers, although in line with most similarly-rated GCC sovereigns. In particular, data on sovereign wealth fund assets and the international investment position is lacking.

The banking sector is healthy. Local banks are highly capitalised and asset quality is solid with non-performing loans at less than 2% of total loans. Credit growth has slowed as the government has moved to directly financing projects from intermediating via banks. There is a demonstrated strong government commitment to its banks and key public-sector companies.

RATING SENSITIVITIES
The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced.

The main factors that individually or collectively might lead to positive rating action are:
- Improvement in structural weaknesses such as reduction in oil dependence, and a strengthening in governance, the business environment and the economic policy framework.

The main factors that, individually or collectively, could lead to negative rating action are:
- Sustained low oil prices that erode fiscal and external buffers.
- An overheating economy that stretches bank balance sheets and necessitates government support.
- Spillover from a regional geopolitical shock or a renewed deterioration in regional political relations, that impacts economic, social or political stability.

KEY ASSUMPTIONS
Fitch forecasts Brent crude to average USD70/b in 2015 and USD80/b in 2016.

Fitch does not expect the moratorium on new gas extraction from the North Field to be lifted over the forecast period.

Fitch assumes that regional geopolitical conflicts will not have a direct impact on Qatar or on its ability to trade and that the domestic political scene will remain stable.