Central Bank Governor Sheikh Abdullah bin Saud Al-Thani remains confident about the prospects for Qatar’s economy, in spite of multiple challenges facing the Middle East-North Africa region and the world at large
Persistently low oil prices, rolling conflicts throughout the Middle East, a massive outflow of humanity sparking the world’s biggest refugee crisis since World War II, vicious attacks by terror groups, even the Brexit vote for the U.K. to leave the European Union: all have added to the uncertainty that is shaking international markets and, specifically, those in the Middle East-North Africa (MENA) region. But through the challenges and instability, Qatar has been standing strong, not least because of a decade of prudent management by the Central Bank.
The government has taken steps to successfully diversify Qatar’s economy, moving away from economic dependence on oil and into other sectors. The contribution of the non-hydrocarbon sector to the economy has already exceeded 50% and is expected to account for 70% of GDP by 2017. The government has tapped the Central Bank, led by Governor Sheikh Abdullah bin Saud Al-Thani, who this year marks 10 years at the helm of the financial institution, to oversee implementation of a Strategic Plan aimed at achieving diversification and developing a competitive economy. Ultimately, the aim of the economic reforms is to ensure a high standard of living for all of Qatar’s people, according to Mr. Al-Thani.
One of the wealthiest countries in the world, Qatar has not, however, been immune to the slump in global energy prices, even as it has moved away from oil as an economic mainstay.
“Developments in Qatar’s economy are influenced by changes in oil prices, as in any other Gulf Cooperation Council (GCC) economy,” says Mr. Al-Thani. “Major factors which contributed to the persistent low oil price were weaker demand from advanced and emerging economies, increased supply from Iran after the lifting of sanctions, and increased production by other oil producers to retain their market share.”
Nevertheless, Mr. Al-Thani expects that eventually balance will be restored in the energy market and the price of oil will settle at “a comfortable level.”
For the time-being, the Central Bank and the Government of Qatar are focused on the present and are taking action to preserve stability without disrupting growth and the people’s standard of living, “making structural adjustments in expenditures without affecting planned infrastructure developments,” the governor says.
Two other financial sector regulators – the Qatar Financial Markets Authority (QFMA) and Qatar Financial Center Regulatory Authority (QFCRA) – are working with the Cental Bank to implement Qatar’s Strategic Plan 2030, which seeks to maintain a stable financial environment for business and investment, while simultaneously enhancing protections for investors and consumers.
To further enhance stability, Qatar is implementing new rules developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. Areas targeted include the liquidity coverage ratio – which requires banks to hold a certain level of highly liquid assets, making them less able to lend out short-term debt – and the net stable funding ratio, which is intended to place limits on the extent to which banks can rely on short-term wholesale funding, in order to encourage better assessment of funding risk and promote funding stability.
The Central Bank regularly conducts “stress tests” on the country’s banks and is actively strengthening “macroprudential oversight and working to develop an early warning system for the financial sector,” says Mr. Al-Thani.
As a result of this sound governance, Qatar-based banks saw the strongest growth in total assets in the third quarter of 2015 of any banks in the GCC. Year-on-year asset growth among Qatar-based banks was 11.3%, compared to 7.5% year-on-year growth among banks in the United Arab Emirates (UAE), 6.5% growth in Saudi Arabia, and 4.5% in Kuwait, according to a report by Kuwait-based Global Investment House.
Omar Mahmood, a partner at KPMG in Qatar, has said that banks are likely to be able to continue growing in the foreseeable future, thanks to the ongoing preparations for the 2022 FIFA World Cup and other planned infrastructure projects.
Mr. Al-Thani says preparations for the competition are “in full swing” and that they would benefit all Qataris.
“The major focus of infrastructure development includes the construction of roads and rail, and sea and airports, etc. This entails increased financing requirements for the real estate and construction sectors. Involvement of the private sector in this development is critical.
“Banks are able to support the increased credit demand – credit to the real estate and contracting sectors grew by around 26.5% in 2015. Investments are also focused on industrial zones, information and communication technology, education, the health sector, etc. These development projects are expected to stimulate the domestic economy and provide substantial investment opportunities for the private sector, including foreign investment.”
U.S. companies are among the international entities helping Qatar to prepare for the 2022 FIFA World Cup. More than 100 U.S. firms have a presence in Qatar, and around six U.S. universities have opened campuses in the emirate.
The presence of those institutions of higher education “supports our vision to transform Qatar’s economy into a knowledge-based economy,” the governor adds.
U.S.-based MSCI upgraded Qatar from frontier market status to emerging market status in 2014 – exactly “the right time,” according to Mr. Al-Thani, who says that the upgrade would improve depth and liquidity in the equity market and attract further investment.
Under the stewardship of the Central Bank governor, Qatar has also taken great strides toward making its National Vision 2030 a reality. The National Vision sets out four guiding principles based on which the government aims to build a sustainable economy and advance the standard of living of its people. Launched in 2008, a key focus of the National Vision is diversification of the economy, and it is already “providing impetus to increased growth in non-hydrocarbon sectors, which grew by around 7.8% in the third quarter of 2015,” Mr. Al-Thani notes.
The Ministry of Development Planning and Statistics has projected that real GDP in Qatar will grow by 4.3% this year, in spite of the pressure the worldwide energy price slump is putting on the small Gulf country.
In the World Economic Forum Global Competitiveness Report 2015-16, Qatar ranked 14th out of 140 countries, the highest score among the GCC countries. The Moody’s ratings agency has forecast that Qatar’s average real GDP growth will remain robust at around 5% until 2017, allowing the emirate to maintain its position as the most competitive economy in the region.
But all is not rosy. Qatar’s Emir, Sheikh Tamim Bin Hamad Al-Thani, last year approved a budget for 2016 that dramatically cuts expenditures, as Qatar stared at its first financial shortfall in 15 years. The budget plans for expenditures in 2016 of QAR 2.5 billion ($687 million), or more than 7% less than in fiscal year 2015. The belt-tightening comes even as spending on public servants’ salaries and major projects, such as preparations for the 2022 FIFA World Cup are on the rise.
And although Qatar’s institutional strength is rated as ‘high’, the Moody’s ratings agency has said governance is constrained by “very high inflation volatility.” Inflation in Qatar averaged 3.43% from 2005 until 2016, reaching an all time high of 16.59% in June 2008 and a record low of -9.96% in December 2009.
Since 2009, however, inflation in Qatar has been relatively stable, and well below rates in MENA as a whole, Moody’s says.