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Middle EastJune 3 2019

Qatar’s central bank governor hails a resilient economy

The governor of Qatar’s central bank, Sheikh Abdulla Bin Saoud Al-Thani, talks to Kit Gillet about how two years of economic blockade has affected the country’s economy.
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Sheikh Abdulla Bin Saoud Al-Thani

Sheikh Abdulla Bin Saoud Al-Thani

After Saudi Arabia, the United Arab Emirates, Egypt and Bahrain cut political and economic ties with Qatar in June 2017, the country faced a challenging new landscape. Yet, according to Sheikh Abdulla Bin Saoud Al-Thani, governor of Qatar’s central bank, the negative effects of the blockade have been limited, and the country continues to strengthen its economic position.

“In the middle of a weakening global economy, the Qatari economy showed a resilient performance in 2018,” says Mr Al-Thani, adding that with the normalisation of capital flows and strengthened macro-economic conditions in 2018, the impact of the economic blockade has “diminished completely”. Economic growth has also been aided by the realignment of Qatar’s trading routes and traditional trading partners, he adds, with stronger ties forming between Qatar and countries such as Turkey and Iran.

Meanwhile, with a return in confidence, the country’s stock market, which declined in the immediate aftermath of the blockade, has almost recovered fully.

Banking growth

According to Mr Al-Thani, the Qatari banking sector showed its toughness in 2018. “Benign macro-economic conditions coupled with proactive steps taken by authorities to protect the economy from challenges associated with the economic embargo proved beneficial for the banking sector,” he says. Indeed, demand from the private sector increased substantially to record growth of about 13%, and overall banking sector assets grew by 4%.

While the central bank, alongside public sector entities, pumped liquidity into the banking sector in the early days of the blockade, Mr Al-Thani says that, given the resilience of the sector, neither the government nor the central bank was obliged to enact any new policy measures.

The banking sector has also witnessed a rebound in deposits from non-residents, following the removal of most deposits emanating from the embargoing countries. “A major part of these new non-resident deposits are from Asian and European countries, indicating the confidence of investors from the rest of the world in our banking sector,” says Mr Al-Thani. 

The country’s foreign exchange reserves have almost regained their pre-blockade level, says Mr Al-Thani, and the banking sector’s capitalisation levels are above the regulatory minimum.

According to Mr Al-Thani, domestic liquidity conditions improved in 2018, and primary liquidity remained in surplus mode, with a lower requirement for repurchase agreements by the banks for short-term liquidity management. “[The banking sector also] improved its funding structure with a focus on stable and long-term sources of funds during the year. The firming up of oil prices over the past couple of years further boosted banking sector liquidity,” he adds. “Consequently the banks are in a position to offer a wide range of products while keeping lending rates at competitive levels.” 

Looking forward

In tandem with sustainable development goals, Mr Al-Thani says that commercial banks in Qatar are launching innovative credit products such as green mortgages, which reward environmentally conscious home loan-takers with concessional financing terms. “Taking advantage of the government push for the small and medium-sized enterprises [SME] sector development, banks are also focusing on credit to the SME sector, especially for agriculture, livestock and fisheries,” he says. The central bank is evaluating the regulatory and supervisory systems to ensure that the financial system remains resilient enough to address unforeseen challenges. 

Qatari banks are also proving to be keen on new technological developments, and are investing considerably in the latest technologies, according to Mr Al-Thani. “We have seen a steep rise recently in demand to move towards some of the key digital transformation projects by the financial sector stakeholders,” he says.

On the economic front, Mr Al-Thani says many new companies have been registered in Qatar since the blockade came into effect, and that the manufacturing sector has emerged as one of the key drivers of growth in the new economic climate. “The construction sector continued to grow at a rapid pace [in 2018] and many projects related to FIFA 2022 progressed well,” he says, referring to the upcoming World Cup, to be hosted in Qatar. 

Meanwhile, two free zones, part of a long-term foreign investment strategy, are under development. “The regulatory environment also promotes foreign investment by allowing 100% foreign ownership and flexible visa policies, backed by strong intellectual property and data protection laws,” says Mr Al-Thani. 

Geopolitics unchanged

There are still concerns related to the ongoing geopolitical situation, and Qatar has accused its neighbours of attempting to devalue its currency, securities and derivatives markets. 

“In the immediate aftermath of the blockade in 2017 there was some volatility in the offshore currency market,” says Mr Al-Thani, who blames manipulative elements aimed at disturbing the financial market and shaking the confidence of investors in Qatar. However, he believes that the speculative attacks on the Qatari currency were “warded off through the announcement of our firm commitment to the [US dollar] peg”, adding that legal investigations have also been initiated against the banks involved. 

Overall, Mr Al-Thani remains confident that the Qatari economy emerged from 2018 in a stronger position to deal with the ongoing economic blockade.

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Read more about:  Middle East , Qatar