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WorldJune 2 2014

Finance minister looks to restructure Qatar

Qatar's gross domestic product growth may be envied by much of the rest of the world, but the country's finance minister is not blinkered by the country's current economic success. As he explains to The Banker, the need to diversify the hydrocarbon-reliant economy is great, which is why he has just announced a record-breaking budget to this end.
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Finance minister looks to restructure Qatar

In March 2014, Qatar’s minister of finance, Ali Shareef Al Emadi, unveiled the largest annual budget in the country’s history. At QR225.7bn ($62bn), the ambitious expenditure plans will support the final stages of a 2011 to 2016 medium-term development strategy, with a focus on meeting upcoming infrastructure needs, as well as driving the country towards its 2030 development vision.

Representing a 3.5% increase from the previous fiscal year, the budget is expected to provide fresh impetus to non-hydrocarbon growth, as the economy continues its swift diversification away from oil- and gas-based activity.

Splashing out

No stranger to the big dollar deals that characterise Qatar’s financial landscape, Mr Al Emadi was appointed finance minister in June 2013, following eight years as chief executive officer of Qatar National Bank (QNB). During his tenure, QNB became the first Arab lender to attain total assets of more than $100bn, according to data from Bloomberg.

Yet, the scale of Qatar’s aspirations for long-term economic, social, environmental and human development, alongside its upcoming 2022 FIFA World Cup obligations, have created a daunting challenge for the country’s leadership. The latest record-breaking budget is emblematic of the work that lies ahead for the Gulf country, which has allocated a total of $182bn to various projects over the next five years, including metro and light rail systems, and new roads and tourist infrastructure.

“The increase in the 2014 to 2015 budget expenditures have been mainly dedicated to the completion and implementation of key development projects, which have been allocated QR87.5bn, an increase of 16.8% from the previous budget,” says Mr Al Emadi. “Also, a key consideration going forward is greater participation of the private sector. This will ensure the further diversification of Qatar’s economy and growth in the non-hydrocarbon sector.”

The healthcare and education sectors will also benefit from increased spending under the new budget.

In conjunction with this spending, the finance ministry is overseeing a broader restructuring of the Qatari economy. Between 2006 and 2011, the country enjoyed double-digit growth of between 12% and 26%. Yet, the completion of major oil and gas projects and the self-imposed moratorium on further gas developments caused a deceleration of growth from 2012, when gross domestic product (GDP) growth figures have been closer to 6%. In a testament to the long-term vision of Qatar’s financial leadership, the private sector, through associated non-hydrocarbons based activity, is starting to fill the vacuum.

“There are encouraging signs that the private sector is taking the lead towards overall growth, with data for 2013 showing a growth of the non-hydrocarbon sector in excess of 11% while that of the hydrocarbon at about 1%,” says Mr Al Emadi. “We expect this trend to continue, providing for further economic diversification and overall sustainable development. This results from the non-oil sector covering various sub-sectors that primarily rely on the private sector’s role, especially services, construction and the financial sectors.”

Private hands

In this respect, the country’s banks are playing an important role. “Qatar’s financial sector, and in particular the banking sector, have played an active role in financing various infrastructure-related and other projects in recent years. This is expected to continue in the years ahead, while at the same time a greater focus is being directed towards mid-size corporates and small and medium-sized enterprises. This focus, along with measures undertaken by the government, provides the mechanism through which the private sector can play an increasing role to boost its contribution to GDP growth, providing for further economic diversification and overall sustainable development,” says Mr Al Emadi.

The government has also played an active part through the development of policies designed to limit competition between private and public sector entities in the local market, assigning more project work to the private sector and encouraging ministries and agencies to outsource associated business services to private sector firms.

Yet, challenges remain. In particular, delays and cost overruns with respect to World Cup infrastructure, as well as cost inflation in the country’s construction industry, are a source of concern. A further challenge relates to the diversification of funding sources, an area in which the authorities have been highly active in recent months.

“Qatar has been effectively deepening its financial markets in recent years," says Mr Al Emadi. "The Qatar Exchange launched the trading of government treasury bills in 2011 and government bonds in 2013, as part of measures to deepen the country’s debt market and diversify investment tools for banks and other institutions. This is also a step towards launching a market for corporate bonds to assist companies in expansion plans and also an opportunity for the public investment programme to issue corporate bonds for revenue-generating projects.”

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Read more about:  Middle East , Qatar