Thursday, August 31, 2017

Further Pressure on Qatar. Really?


When A Story Falls Through the Cracks, Who Catches It?

If you read Gulf News regularly, you’ll have seen their article on Fitch’s downgrade of Qatar’s long term sovereign risk rating to AA- “Qatar Faces Further Pressure as Fitch Downgrades Sovereign Rating”.  
Sounds grim, perhaps even "subdued" if we apply Indian standards. 
But when context is missing, AA is there to catch what’s fallen between the cracks or perhaps in this case deliberately dropped between the cracks given GN’s demonstrated past ability to quote press releases verbatim.
Fitch did indeed downgrade Qatar’s sovereign rating.
A couple of points.  
First, AA- is still investment grade. 
Second, within the GCC context, Qatar’s sovereign rating is certainly well within range of its neighbors.  Fitch ratings page here.

COUNTRY
RATING
Bahrain
BB+
Kuwait
AA
Oman
BBB
Qatar
AA-
Saudi Arabia
A+
UAE
AA


Earlier this year, Fitch downgraded KSA several notches in one go. The pressure must be intense if one applies GN standards.  As to Bahrain, if you don’t know, BB+ is non-investment grade.  
Third, regarding my comment about taking flawless dictation from press releases, here are some quotes that GN somehow omitted.  Fitch press release here.  AA comments in red boldface.  Other boldface to highlight key points.

At an expected 146% of GDP in 2017, Qatar's SNFA [sovereign net foreign assets] are well above the 'AA' median and are sufficient to finance two decades of fiscal deficits or to repay all the estimated external liabilities of GREs, banks, and the private sector (around 90% of GDP).  Qatar's SNFA are underpinned by the foreign assets held by the QIA. Specific figures on the size, returns and asset allocation of the QIA are not publicly disclosed, but we estimate that its foreign assets amounted to USD283 billion at end-2016. We expect QIA foreign assets to fall in 2017 as a result of draw-downs to support the banking sector, which may not be completely offset by the return on QIA assets.
And here's another.
Qatar has been able to restructure its supply chain and avoid major economic and social instability. We expect only a slight up-tick in inflation (to 4% in 2017 from 2.8% in 2016). Inflation was 0.2% yoy in July 2017 (4% for food). Imports dropped 40% in June, but we expect that this will be temporary. Ports in India and Oman have replaced Dubai's Jebel Ali as transhipment points for goods destined for Qatar. Significant stockpiles of construction materials are giving the government time to examine longer-term supply options even as deliveries from quarries in Iran and Oman continue. Qatar Airways' cargo capacity has been used to maintain supplies of food and other perishable goods.

When you factor all this in, and AA hopes you do, you may have a different view of Qatar’s current situation. (Note that caveat.)

No comments: