QATAR: S&P upgrades the sovereign back to AA

GULF COUNTRIES - In Brief 04 Nov 2022 by Justin Alexander

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Hot on the heels of Moody’s positive outlook on Qatar on Wednesday, Standard & Poor’s has gone one step further and upgraded the sovereign back to AA, its level before all three rating agencies downgraded it by a notch in 2017 for a host of reasons including banking liabilities, the Quartet blockade and fairly weak oil prices. The timing of the two positive actions this week is likely coincidental, owing to a concurrence in their roughly six-month update cycles, rather than any specific recent development. (For analysis on Moody’s see our 2 Nov note and additional analysis in our 4 Nov weekly). S&P's rationale for the rating action was similar to Moody’s, focusing on the declining debt burden. We noted in our 13 May weekly that the previous S&P update quantified a criterion for an upgrade if “debt servicing costs were to moderate below 5% of revenue consistently”. At the time it was forecasting servicing costs rising back to 7% of revenue in 2025, so the criterion was not met. However, its latest forecasts see costs averaging just 4.4% in 2023-25, meeting the criterion and helping to justify the upgrade. The decline in debt servicing happens largely because S&P now expects the government to repay maturing debt in the coming years, bringing debt stock down sharply to just $58bn (27% of GDP) in 2025, from 63% at end-2021. Previously, S&P had been forecasting a decline to only 49% of GDP in 2025. This forecast change does not appear to have been driven not by any significant change in the macro outlook, but rather because it seems S&P has become more confident in the seriousness of government plans to reduce debt. Qatar had indicated last year that it would pay down local...