'Qatar possesses the world's second-largest gas reserve, and the government's commitment to increasing the contribution of liquefied natural gas (LNG) to the country's gross domestic product (GDP) is paying dividends,' Moody's said.

Other positive factors are the Dolphin project, which will pipe gas to the UAE and Oman, and gas-to-liquid (GTL) complexes being developed in the country. Several government-owned companies have been privatised.

Moody's says Qatar is playing an important role in the US military action against Iraq, and in return the increased US army presence provides for its external security needs. 'This arrangement will also allow the country to reduce its own military funding in the long run, and will contribute to an improved climate for foreign direct investment,' it adds.

Qatar has enjoyed a budget surplus since 2001, after several years of budget deficits. Fiscal management has generally been prudent and the borrowing requirements of the government have been modest relative to the growth of the economy. The government plans to reform the welfare system by gradually replacing subsidies on water and electricity consumption with grants to poorer families. A national pension scheme is also being considered.

Moody's says that in early 2003 Qatar's total direct government debt amounted to $ 9,200 million, equivalent to 49 per cent of GDP. 'Qatar's philosophy is to continue to have a (rolling) debt, new projects replacing older projects financed with external funds, as long as market conditions make this option viable,' Moody's said.