State of Qatar 'A+' L-T, 'A-1' S-T ratings affirmed on strong financials; outlook stable

The outlook is stable. At the same time, Standard & Poor's affirmed its 'A+' foreign currency issuer credit rating on Qatar Petroleum. The outlook is stable. In addition, the 'A+' senior unsecured debt rating on the $700 million notes maturing in October 2010, issued by Qatar Global Sukuk QSC, was affirmed.

"The ratings on Qatar are supported by prudent and sustainable fiscal policy that results in strong budgetary outturns, by substantial external liquidity, healthy economic prospects driven largely by the gas industry, and by the ongoing improvement in domestic political institutions," said Standard & Poor's credit analyst Luc Marchand. "The ratings remain constrained primarily by the geopolitical risks facing sovereigns in the Gulf region, which are higher than for other 'A' rated sovereigns."

Standard & Poor's expects Qatar's strong fiscal performance to continue. Assuming an average Brent crude price of about $66 per barrel, a fiscal surplus of about 10% of GDP is projected in fiscal year 2006/2007 (ending March 31, 2007). General government debt is expected to continue declining to 24.5% of GDP at fiscal year-end 2006/2007. Taking into account our estimate of government assets, the state is expected to record a net asset position of about 65% of GDP in fiscal 2006/2007.

Qatar's GDP per capita, estimated at $61,540 in 2006, is among the world's highest. Real economic growth is expected to maintain its impressive pace, at about 10% in 2007, and will average 14% in 2008-2009, as heavy investment in the LNG industry expands production capacity.

However, tensions between the U.S. and Israel on the one hand, and Iran on the other, over the alleged Iranian nuclear weapons program, have increased regional uncertainties, aggravated by the outbreak of violence between Israel and Hizbollah in Lebanon. These developments constrain the ratings through their impact on the economic and political stability of the Middle East, for a variety of reasons. Among these are heightened anti-Western sentiment and the risk of extremist activity, the impact on Shi'ite-Sunni relations in the Gulf, and the risk of Iranian retaliation on neighboring countries or on U.S. interests located there.

"We expect the strength of Qatar's finances to help the country through significant periods of turbulence, and do not foresee immediate strong downward pressures on the rating if geopolitical risks materialize," said Mr. Marchand. "Upward momentum on the ratings will depend primarily on the evolution of these geopolitical risks."