Strengthening the Market

What is your strategy for financing the fiscal deficit in 2017?

According to the latest economic outlook published by Ministry of Development Planning and Statistics (MDPS), the fiscal balance may turn out to be deficit in 2016. The situation is likely to continue in the next two years, though at moderate levels. Financing the expected lower revenue flows from oil and gas sector has to meet through a combination of higher non-oil revenue and debt financing. As part of the fiscal consolidation strategies, efforts are in place to improve the revenue stream. In 2015, water and electricity tariffs increased, while gasoline prices increased in 2016. In addition, the government has introduced a pricing mechanism to revise fuel prices on a periodical basis. Coordinated efforts are also in place at the regional level to draft a proper policy design for tax reforms. As regards to debt financing, Qatar has already taken advantage of its strong economic fundamentals reflected by the stable credit rating provided by international rating agencies through issuance of sovereign bonds in the international market in 2016. Further, the domestic bond market has also been explored as part of fiscal balancing. In 2016, bonds worth USD4.7 billion have been issued, where more than one-fourth of the debt was of sukuk issuance. Out of the total issuance of domestic bonds, USD2.2 billion worth of bonds maps the same amount of bonds matured during 2016. Needless to say, QCB has been involved in the development of the government debt market even when the government has surplus funds. Thus, the issuance of government bonds and sukuk within the banking sector largely reflects the measures taken for the development of the government debt market for liquidity management.

What factors drive bank mergers, and how do you see this trend evolving in the region?

Bank mergers have their advantages and disadvantages. In general, merger talks are initiated when the banks involved expect the value of the combined entity to improve after the merger. When the operating environment becomes challenging for a large number of smaller banks, the shareholders initiate talks of mergers to maximize benefits through reduction of corporate risks and enhancement of earnings. The combined entity can optimize their efficiency in utilization of resources to build a stronger financial institution with solid financial position and liquidity. Consolidation can reduce operational costs and thereby enhance profits. However, there are downside risks also. Excess resources under the control of one entity may adversely affect the pricing.

What are the main challenges that need to be addressed?

In April 2016, QCB issued new insurance instructions; these instructions were benchmarked taking into consideration the IAIS insurance core principles, the regional and international best practices, and the current local market situation. The instructions cover all insurance supervisory issues, starting from licensing a company to the process of runoff. It deals with prudential returns, investment concentration, risk management framework, and conduct of business. Further, regulatory instructions regarding corporate governance taking into consideration commercial companies’ law and QMFA regulations were also issued last year. In addition, instructions for transitional arrangements for existing insurance companies have also been issued to assist in smooth transition from a non-regulated market to a well-regulated one. QCB law requires insurance companies to get approval for all insurance policies. To supplement the regulatory instructions on insurance companies, draft instructions for insurance intermediaries and jobs related to insurance—actuaries, loss adjusters, and insurance specialists—are currently under public consultation. Thus, we aim to strengthen the insurance intermediaries market by raising the minimum capital requirement and prudential requirement. These requirements also assist weak intermediaries to exit the market, helping to raise the quality of existing intermediaries. Overall, the regulations, instructions, and transitional arrangements are expected to improve the soundness and strength of existing insurance companies and assist in attracting new entrants to the insurance market.