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Report States Qatar Will See More Spending and Lower Rates

Qatar : 16 April 2011

The International Bank of Qatar’s GCC Brief reported that Qatar is set to boost spending and cut interest rates to stimulate the national economy.

According to the report, real GDP in Qatar has seen 23 percent CAGR (or compound annual growth rate) from 2003 to 2010, making it the fastest growing nation in the world for the last few years.

Healthy grow even followed the worldwide financial crisis and in 2010 Qatar is forecasted to record 16 percent growth. In 2011, once the build up of hydrocarbon production capacity hits its peak, the non-hydrocarbon industries will become the target for most of the future growth required for Qatar to reach its long term goals as outlined in the National Vision 2030 and within the planning for the 2022 FIFA World Cup.

According to the report the government in Qatar is using every avenue to maintain a quickly growing economy. The national development strategy focusing on fiscal policies from 2011 to 2016 was recently released and included $125 billion in spending. Regarding the monetary climate in Qatar, the QCB (or Qatar Central Bank) has cut 50 to 55 bps from the benchmark interest rates in an effort to smooth conditions and increase lending.

Falling under the National Vision 2030, the National Development Strategy 2011 to 2016 includes $125 billion in spending over a five year period, which is nearly 25 percent of the forecasted GDP for the same period, according to IBQ GCC Brief. This spending is aimed at upgrading the infrastructure in Qatar in order to accommodate a rapidly expanding economy and population, support the non-hydrocarbon industry’s growth and lay the foundation for further investments involved in the 2022 FIFA World Cup event.

Promotion of the Qatari private sector should also be a result of this spending. The expenditures will be spread over different business entities. Housing projects are the main thrust of Q-company spending (not including Qatar Petroleum and those firms related to it), with more than QR 130 billion (or $36 billion) expected. Qatar Petroleum and related firms have plans to spend QR 88 billion (or $24 billion) in petrochemical sector expansion. Also, government plans include over $65 billion in investments to upgrade the nation’s infrastructure.

On April 5, 2011 the QCB lowered the interest rates, cutting the lending rate to 5 percent and the deposit rate to 1 percent, a drop of 50 bps. These are the first cuts seen since August of last year. The QCB repo rate was also cut to 5 percent, a reduction of 55 bps.

This drop in the interest rates is targeted at a few different issues. The QCB is hoping to make loans more affordable, hence the cuts to the repo and lending rates. This will hopefully spur lending within the private sector after it fell to 8 percent year on year in February, a drop from the double digit expansion seen in recent years and a rate of higher than 40 percent seen before the crisis.

The cuts are also targeted at domestic banks that are participating in the finance of developments. They should make Qatari bank lending rates more competitive with banks worldwide that have access to cheap funds, according to the IBQ GCC Brief.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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