Moody’s upgrades Qatar to Aa2, changes the outlook to stable

Marked improvements in Qatar’s fiscal metrics, coupled with a reduction in infrastructure spending, have prompted Moody’s Investors Service to upgrade the nation’s debt rating from “Aa3” to “Aa2.”

This upgrade is further fueled by a substantial increase in Qatar’s liquid natural gas production, expected to contribute to growth, government revenue, and exports.

The foreign currency senior unsecured medium-term note program rating has also been elevated to Aa2 from Aa3, with the outlook revised from positive to stable.

Moody’s attributes this upgrade to its confidence that Qatar will maintain the positive trajectory of fiscal improvement experienced from 2021 to 2023 over the medium term.

The US-based agency emphasized the government’s commitment to fiscal prudence, illustrated by the continued reduction of its infrastructure spending program.

While expressing optimism, Moody’s maintained a stable outlook, acknowledging the potential downside risk of a significant fiscal deterioration. This risk is associated with a scenario where hydrocarbon demand and prices experience a notable decline, potentially triggered by a more rapid global carbon transition than currently assumed by Moody’s.

Longer-term risks associated with the carbon transition are balanced by Qatar’s ample time, institutional capacity, and financial resources to diversify its economy, according to Moody’s.

Near-term risks related to heightened regional geopolitical tensions are balanced by the government’s “very large” stock of financial assets, which can serve as a buffer for temporary disruptions in exports and government revenue, stabilizing Qatar’s balance of payments.

Regarding Qatar’s local and foreign currency ceilings being raised Aaa from Aa, the body said that this is reflective of “predictable institutions, effective policymaking, and moderate political risk that is set against heavy reliance on a single revenue source and the government’s relatively large footprint in the economy.”

The foreign currency ceiling at Aaa, in line with the local currency ceiling, reflects extremely low transfer and convertibility risks given the central bank’s “robust foreign exchange reserves.”

Moody’s view is that Qatar’s very large sovereign wealth fund assets could also be used to support the balance of payments if needed.