Qatar: Risk Assessment
Country Risk Rating
|A3||Changes in generally good but somewhat volatile political and economic environment can affect corporate payment behavior. A basically secure business environment can nonetheless give rise to occasional difficulties for companies. Corporate default probability is quite acceptable on average.|
Business Climate Rating
|A3||The business environment is relatively good. Although not always available, corporate financial information is usually reliable. Debt collection and the institutional framework may have some shortcomings. Intercompany transactions may run into occasional difficulties in the otherwise secure environments rated A3.|
A strong growth
Growth in Qatar remains among the strongest in the region. Qatar is one of the best-equipped countries to deal with the weak oil market. Thanks to its dynamic non-oil and gas market and the rebound in gas production Qatar’s growth rate will remain high. Moreover, the commissioning of the Barzan gas project from which production will reach 1.4 billion cubic meters in 2016 will increase the performance of the gas sector. However the limited growth of oil production due to the maturity of the field, will feel the impact of low prices. Although the operation of Barzan is intended to meet rising demand on the domestic market, the production surplus will help stabilize the country’s gas production. The gas sector is also subject to less price volatility.
Although the price of gas is correlated with that of oil, the gas market is fragmented and based on forward and futures contracts. As for the non-oil and gas economy, the services and construction sectors, and the big public investments launched before 2015 should continue to drive growth. In addition to the projects under way for the 2022 Football World Cup, there are a number of infrastructure improvement projects that are ingoing, including the city and airport of Lusail (delivery in 2019), the Ashghal highway (2018) and Hamad airport (2020). Consumption is expected to remain firm, underpinned by the strength of population growth (over 7%) which is it still driven by rising numbers of foreign workers attracted by the job opportunities in Qatar. Inflation, after slowing in 2015 thanks to falling global commodity prices and lower property prices, is likely to rise slightly in 2016 with the increasing level of demand for services.
Emergence of twin deficits
In 2015, the public accounts remained in positive territory despite the contraction in budget revenue. The resilience of the Qatari public accounts in this challenging oil market can be found in the low budget breakeven price that will remain around $57 in 2016 whereas it will reach $95 in Saudi Arabia and $67 in the UAE. Thus in 2016, Qatar is expected to record only a small deficit whilst the authorities continue with the investment spending. They are nevertheless planning on implementing a number of adjustments in order to offset the fall in oil receipts. The non-oil and gas economy will have to make a greater contribution to the budgetary effort with higher corporate taxes. Even so, current expenditure will have to be rationalized. The public deficit will be financed with the use of debt. Public debt is therefore expected to grow in 2016.
With the fall in oil export income, the current account surplus fell in 2015. In 2016, the deficit of the trade balance is expected to shift the current account into the red. The growth in domestic demand will continue to feed through in a rapid expansion in imports whilst the low levels of oil and gas prices and the moratorium on increasing gas exports will hit export revenues.
Internal policy towards opening up
Emir Hamad Al Thani abdicated in June 2013, after an 18 year reign, in favor of one of his sons, Tamim, who became the youngest monarch in the Gulf. The handover of power was accompanied with a mild injection of youth into the government team, although continuity appears to be the general rule. The country held its fifth round of legislative elections in May 2015, which was an opportunity for two women to join the assembly of 29 advisers. Qatar, often the subject of criticism over the working conditions of its migrant workers, carried out a major reform of labor law for expatriate workers in 2014. This was intended to ease the “kafala” system (the sponsoring of a foreign worker by a national). In February 2015, new measures became applicable granting foreign workers greater rights including a wages protection system aimed at reducing abuses such as the non-payment or delayed payment of wages. Improvements could be made to the business climate, in particular in terms of bureaucratic obstacles, investment protection and labor law as applied to foreign workers.
Because of its financial support for the Muslim Brotherhood movement, Qatar has been a major player in the Arab Spring. Its diplomatic and strategic positioning in the region has weakened its relations with the other monarchies in the Gulf. The recent involvement of Qatar as part of the coalition in Yemen and its likely contribution of a contingent of soldiers for on the ground intervention is indicative of an improvement in its relations with other countries in the region.