QATAR: YEAR IN REVIEW

Sta­bil­ity and con­sol­i­da­tion were Qatar's watch­words in 2016, as the gov­ern­ment con­tin­ued to make long-term in­vest­ments in na­tional in­fra­struc­ture at a time of re­stricted eco­nomic growth in the re­gion.

Qatar Today - - INSIDE THIS ISSUE -

Sta­bil­ity and con­sol­i­da­tion were Qatar's watch­words in 2016, as the gov­ern­ment con­tin­ued to make longterm in­vest­ments in na­tional in­fra­struc­ture at a time of re­stricted eco­nomic growth in the re­gion.

In its “2016 World Eco­nomic Out­look,” the IMF fore­cast that Qatar's GDP growth for the year would come in at 2.6%, down from 3.7% in 2015, as high state spend­ing con­tin­ued in a wider con­text of lower en­ergy prices. Look­ing ahead, how­ever, the gov­ern­ment's strong pol­icy di­rec­tion and lead­er­ship look set to pay div­i­dends, with the IMF an­tic­i­pat­ing real GDP ex­pan­sion of 3.4% in 2017, the high­est rate in the GCC.

Sig­nif­i­cant pub­lic spend­ing will con­tinue in 2017, as the gov­ern­ment seeks to en­sure a num­ber of ma­jor in­fra­struc­ture projects are com­pleted on time. The 2017 bud­get, an­nounced in De­cem­ber by the Min­istry of Fi­nance, al­lo­cates QR93.2 bil­lion ($25.6 bil­lion) for ma­jor projects, main­tain­ing spend­ing in key ar­eas such as health, ed­u­ca­tion and trans­port. Ac­cord­ing to the min­is­ter of fi­nance, Ali Sha­reef Al Emadi, this would in­clude QR46.1 bil­lion ($12.7 bil­lion) on new projects to be signed in the com­ing year, split be­tween in­fra­struc­ture and trans­porta­tion pro­grammes worth QR25 bil­lion ($6.9 bil­lion), projects re­lated to FIFA World Cup 2022 fa­cil­i­ties val­ued at QR8.5 bil­lion ($2.3 bil­lion), health and ed­u­ca­tion schemes of QR5.8 bil­lion ($1.6 bil­lion), as well as QR6.8 bil­lion ($1.9 bil­lion) of projects in other sec­tors. “An in­crease in the pace of con­struc­tion ac­tiv­i­ties on var­i­ous projects will lead to higher al­lo­ca­tion for ma­jor projects dur­ing

the com­ing three fis­cal years,” Al Emadi told lo­cal me­dia in mid-De­cem­ber.

To­tal gov­ern­ment spend­ing is bud­geted to reach QR198.4 bil­lion ($55.5 bil­lion) for 2017. This in­vest­ment strat­egy is sup­port­ing an in­creas­ingly di­ver­si­fied econ­omy, with non-oil growth fig­ures reach­ing 7.8% in 2015 and 5.8% in the first half of 2016, well above the coun­try's over­all GDP growth recorded for the year. Main­tain­ing spend­ing, how­ever, will re­sult in a bud­get deficit of QR28.3 bil­lion ($7.8 bil­lion), down 39.1% on the bud­geted deficit for 2016. Given Qatar's re­cent his­tory of high oil rev­enues, this would be the coun­try's sec­ond bud­get deficit in 15 years.

Greater worker pro­tec­tion

On­go­ing state ini­tia­tives in­clude eas­ing reg­u­la­tions for Qatar's largely mi­grant work­force, some­thing that has be­come a point of con­tention in re­cent years. In midDe­cem­ber, the gov­ern­ment an­nounced that it had lifted the con­tro­ver­sial kafala (spon­sor­ship) labour leg­is­la­tion. Un­der the kafala sys­tem, mi­grant labour­ers were al­lowed to leave Qatar only with per­mis­sion from their em­ploy­ers, and work­ers who left a job at the end of the con­tract were re­quired to wait at least two years be­fore re­turn­ing to the coun­try for em­ploy­ment by an­other com­pany.

Kafala has now been re­placed by a new sys­tem, which the min­is­ter of labour, Essa bin Saad Al Naimi, called “a mod­ernised, con­tract-based sys­tem that safe­guards work­ers' rights and in­creases job se­cu­rity.” As a re­sult, for­eign work­ers in the coun­try no longer need spon­sor­ship to change jobs or leave the coun­try. Em­ploy­ers who con­fis­cate pass­ports, block­ing the rights of em­ploy­ees from leav­ing the coun­try, will be fined QR25,000 ($6,800), up from QR10,000 ($2,700) un­der the pre­vi­ous sys­tem. The new law also pro­vides a griev­ance com­mit­tee for cases in which spon­sors refuse to grant exit visas.

Strong year for Is­lamic bank­ing

Qatar's fi­nan­cial ser­vices sec­tor per­formed strongly in 2016, with Is­lamic bank­ing in par­tic­u­lar record­ing high growth. Shari­a­com­pli­ant bank­ing grew by 7.2% in the first half of 2016 while the con­ven­tional side of the sec­tor in­creased by 6.5%, with rat­ings agency Fitch at­tribut­ing the growth fig­ures to higher re­tail and real es­tate fi­nanc­ing. Among the in­dus­try's strong­est per­form­ers was lo­cal sharia-com­pli­ant in­vest­ment bank Qin­vest, which in Novem­ber an­nounced a rev­enue in­crease of 18% yearon-year in the first nine months of 2016. How­ever, Fitch ex­pects full-year fig­ures for 2016 to show Is­lamic bank­ing growth slow­ing in the sec­ond half of 2016, cit­ing re­duced hy­dro­car­bon re­serves and high gov­ern­ment spend­ing.

Else­where in bank­ing, fol­low­ing the US Fed­eral Re­serve's De­cem­ber an­nounce­ment that it was rais­ing its fed­eral funds rate's tar­get range to 0.50.75%, the Cen­tral Bank of Qatar (QCB) in­creased in­ter­est rates by 0.25%. This means that the overnight lend­ing rate was raised from 4.5% to 4.75% and the deposit rate went from 0.75% to 1%, as of the mid­dle of De­cem­ber. The Fed's rate hike and QCB fol­low­ing suit were both ex­pected. In a re­cent re­port, Fitch Group re­search agency BMI had fore­cast that Qatar's 2017 growth meant it would be in a po­si­tion to with­stand the ef­fects of the hike

BY OLIVER CORNOCK Man­ag­ing Editor, Mid­dle East Ox­ford Busi­ness Group

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