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Middle EastJune 5 2020

Speedy response should shore up economy, says Qatar's central bank

While Qatar expects to feel an economic slowdown from the pandemic, central bank governor Sheikh Abdulla Bin Saoud Al-Thani is confident the country has acted to curb the most serious of impacts.
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Sheikh Abdulla Bin Saoud Al-Thani

Sheikh Abdulla Bin Saoud Al-Thani

Like many central bank governors around the world, Sheikh Abdulla Bin Saoud Al-Thani, governor of Qatar Central Bank, is facing a challenging moment. The global coronavirus pandemic, coupled with drastically reduced oil prices, is causing large-scale economic disruption that could stretch on for months or even years. Despite this, he is generally optimistic about the country’s ability to withstand the impact on its economy.

“Given the low fiscal break-even of oil prices for the state of Qatar, we expect the economy to withstand much of the adverse impact,” Mr Al-Thani says, while adding that restrictions due to Covid-19 will definitely lead to some slowdown in economic activity, with the precise impact difficult to estimate at present.

Coronavirus measures

Qatar acted swiftly to try to blunt the initial impact of the virus, implementing a partial lockdown and, in mid-March, unveiling a QR75bn ($20.5bn) stimulus package to provide relief to the country’s private sector.

Mr Al-Thani says the central bank has taken measures to support different sectors of the economy. “I am sure these supportive measure will ensure the banking sector remains resilient to additional stress from the ongoing macroeconomic conditions,” he says, adding that if the first four months of the year can be taken as an indicator “there is absolutely no pressure on the external funding liquidity”.

He also points out measures the central bank has taken to help lenders, including reducing its policy rates twice in March. At present, the deposit and repo rates both stand at 1%, while the lending rate is 2.5%. The central bank has also provided liquidity support to banks through the repurchase window, at zero cost. “This new arrangement will facilitate banks to postpone loan instalments from the affected sectors for a period of six months,” he says.

Economic fundamentals

Mr Al-Thani describes the performance of the Qatari economy in 2019 as resilient to the ongoing economic and political blockade put in place by Saudi Arabia, the United Arab Emirates, Egypt and Bahrain in 2017, as well as the the sluggish global economic environment.

Preliminary estimates suggest that gross domestic product contracted marginally in 2019, he says, which must be evaluated in “the context of the extreme challenges posed by global economic slowdown and volatile energy markets”.

At the same time,Qatar continued with its economic diversification process in 2019 in line with Qatar National Vision 2030. "Critical policy reforms were undertaken to enhance the role of the private sector in the economic growth process,” he says. This is crucial for the country as it tries to move away from its over-reliance on oil and gas revenue.

Blockade realities

Qatar is still operating under a blockade from some of its largest neighbours, though the impact on the economy has been far more limited than initially feared and tensions appear to be easing somewhat.

Mr Al-Thani says after the blockade was put in place, Qatar was quick to realign its relations with regional and global partners by fostering new business partnerships and trade routes. After an initial period of capital outflows, there were large capital inflows in 2018 and 2019, indicating confidence of global investors in Qatar’s economy, he adds. “The fact is that Qatar has moved on and achieved goals that were unthinkable before the blockade. The geopolitical environment has changed drastically over the past three years.”

Qatar has also made itself more welcoming to international investors, pursuing various reforms to meet their needs, he says. He points to eased visa requirements and liberalised tax laws, as well as a new investment law, enacted in January 2019, that removes the obligation for non-Qatari businesses to have a local majority shareholder. “Essentially, all sectors of the Qatari economy are now open for foreign direct investment, except banking, insurance and defence,” he says.

Fintech drive

Looking to the future, Qatar Central Bank is now gearing up to announce a new fintech strategy built around innovation, resilience and global competitiveness, according to Mr Al-Thani. At the same time, the strategy will provide “a licensing and supervising framework for fintechs looking to operate in or from Qatar”, including the establishment of regulatory sandboxes.

“The initial focus will be on the development of fintech related to payments for achieving the goals of Qatar National Vision 2030, specifically of moving towards a secure cashless society with greater financial inclusion,” he says.

Mr Al-Thani highlights the recently launched Qatar Mobile Payment System, an instant retail payment system that will provide a central platform for banks to settle interbank mobile payment transactions.

“Many banks have already come up with e-wallets based on this platform,” he says. “Considering the high internet and digital penetration in Qatar, these initiatives are expected to further boost the digital payments in Qatar.”

For now, however, the immediate focus needs to be on mitigating the coronavirus impact. Mr Al-Thani expects some economic recovery during the second half of 2020, and that this will be primarily driven by non-hydrocarbon sector growth, “benefited from accommodative monetary policy stance and other policy measures”. He adds that the higher government expenditure in Qatar, mentioned in the state budget, is also expected to provide growth momentum going forward.

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Read more about:  Middle East , Qatar