Qatar’s abundant sovereign wealth fund assets ease ‘high’ debt obligations: report

Liquified natural gas flows from Qatar to Europe has remained flat in the first half of 2022 with no fluctuations, despite early expectations detailing otherwise.

Qatar’s monetary abundance in foreign reserves and sovereign wealth fund assets have aided the country in addressing its “high” debt obligations, per findings of the Economist Intelligence Unit’s (EIU) latest report.

The macroeconomic activity of Qatar is experiencing an upward progression this year. Macroeconomics of a country refers to the performance of its economy, namely changes in economic output, inflation, interest and foreign exchange rates, and the balance of payments.

Qatar’s fiscal account surplus is set to experience a surge this year as the country is exporting a greater value of goods and services than it is importing. This is due to high global hydrocarbon prices, which will aid in alleviating its public debt pressures.

As the world’s top liquified natural gas (LNG) supplier, Qatar has been approached by many countries since the start of the year for its gas in light of the Russian invasion of Ukraine.

Europe receives 40% of its gas supplies from Russia and almost a third of those shipments pass through Ukraine. The region is juggling with an energy crisis as a result of a hike in oil prices caused by the Russian-Ukrainian conflict.

As European countries work towards reducing their dependence on Russian gas, Qatari oil has been in high demand, with some abandoning their net-zero emission criticism of the Gulf country.

“There was a build up of countries pushing for the [energy] transition in a hard way. [They pushed for] net-zero, moving to renewables, doing away with fossil fuels and demonising the oil and gas companies, [calling them] the bad guys. And [as a result] you don’t have enough investment in the oil and gas sector,” said the country’s energy minister Saad Sherida Al Kaabi earlier in May.

However, LNG flows from Qatar to Europe has remained flat in the first half of 2022 with no fluctuations, despite early expectations detailing otherwise.

Separately, the net negative foreign asset position of Qatar’s banks is large, however it fell in the first quarter of the year.

While net external liabilities pose risks to the sector, indicators are in place to protect banks from a slump in asset quality that could be triggered from a possible long-term recession. While the sector is well-regulated, non-performing loan ratio remains low while profitability levels sit comfortably on moderate grounds.

The riyal’s peg to the US dollar will continue to be supported by “healthy” foreign reserves and Qatar Investment Authority assets, the EIU said.

The current risk rating standing at ‘BBB’, which indicate that expectations of default risk are currently low, the EIU noted. The rating is backed by high international gas and oil prices and an increasing current-account surplus (meaning Qatar is a net lender to the rest of the world), as well as by rebound financing and liquidity metrics.

Rebound financing refers to the recovery from a prior period of negative activity or losses, while liquidity metrics measures the ability of an entity to use its near cash or quick assets to pay debt obligations immediately.

The EIU also assigned a BB-risk rating to the country’s economic structure, with Qatar’s over-reliance on hydrocarbons exports creating a vulnerable situation as it sensitises the country to global energy price fluctuations.

Qatar’s LNG

In June, Qatar’s LNG production reportedly dropped in 2022, in spite of a surge of requests from European countries to secure Doha as an energy supplier.

The decrease in the Gulf country’s LNG production is partially due to several liquefaction trains being unavailable due to scheduled maintenance, Bloomberg reported.

According to ship-tracking data compiled by Bloomberg, Doha exported less than 35 million tonnes of LNG between the months of January and May, which is down from last year’s 36 millions tonnes.

Qatar was the world’s biggest LNG producer in 2021, however Australia and the US exported more in May, according to Bloomberg.

Although Qatar’s exporting capacity does not level up to last year’s output, it is generating more income from sales. Most of Doha’s long-term contracts are linked to oil prices, which were about 60% higher in the first five months of this year, compared with 2021.

Qatar’s GDP

Qatar has been ranked as the richest Arab country and the fourth wealthiest on a global scale, as per Global Finance’s latest report.

“The per-capita GDP of a Qatari citizen was over $143,222 in 2014, it was ‘just’ $97,846 a year later, and to this day it remains barely above that level,” read the report.

The Gulf state was followed by the UAE, Bahrain, Saudi Arabia, Kuwait, and Oman. Qatar’s ranking comes as its economy continues its post-pandemic recovery, described as “the fastest growing economy” by the World Bank.

The country’s real GDP is expected to increase by 4.9% this year, followed by a 4.5% growth in 2023 and 4.4% rise in the year 2024.

“Still, the country’s oil, gas and petrochemical reserves are so large, and its population so small—just 2.8 million—that this marvel of ultramodern architecture, luxury shopping malls and fine cuisine has managed to top the list of the world’s richest nations for 20 years,” said the Global Finance.

Qatar’s economic growth will also be the fastest in comparison to other GCC states throughout the years 2023 and 2024.

Addressing the Qatar Economic Forum (QEF) in June, the Gulf state’s leader Sheikh Tamim bin Hamad Al Thani said his country has been introducing legislative amendments to encourage commercial transactions, enhance competition, and ensure consumer protection.

One such development includes allowing 100 % foreign investors ownership of companies, which has in turn has “led to a significant increase in the volume of domestic and foreign investment”.

Foreign direct investment increased by 27% in 2021 in comparison to 2020, said the leader.

A major contributing factor to Qatar’s projected GDP growth is its current plans to boost its liquified natural gas (LNG) production under the North Field expansion project.

The project is the biggest of its kind and is set to boost Qatar’s annual LNG gas production capacity from 77 million metric tonnes to 126 million tonnes by the year 2027. The project is expected to generate revenue of $40 billion upon the completion of the first part by 2025.

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