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The Contribution of the Qatari Financial Sector to the Economy and Government Policy of Economic Diversification

I. Introduction

Qatar, akin to many other Middle East nations, has had a tumultuous economic history. Qatar remained under British rule until 1971 (Qatar Central Bank, 2009a). After the country attained independence from Britain in September 1971, the country implemented a number of reforms in the financial sector which caused major changes in the internal and external sectors of the economy (Edo, 1975). Qatar, in its efforts to aid the economy by integrating it with the global economy, joined International Monetary Fund in 1972 which opened up the financial sector wider. One of the most important features of the economy has been the dominance of oil and gas related businesses. Qatar commenced oil exports in 1949 and since then oil and gas have fuelled the economic growth in the country. Qatar's need for banking was realised as soon as the country began embarking on large scale exports. Being under British rule, the country witnessed the entry of a number of British banks in 1950 (Qatar Central Bank, 2002). However after independence, the country's central bank encouraged domestic banks and regional banks to establish presence in the country. Through careful policy implementation, the regional banks have been allowed to play a major role than foreign banks. Besides, subsequent policy changes have also allowed financial intermediaries, insurance companies and money exchange companies to come into existence. The objective of this chapter is to analyse the role of financial system of Qatar and its contribution to the economy of Qatar.

IV. Conclusion

Qatar is a fast growing economy which is one of the wealthiest in the world and in the region. The financial sector in Qatar has been at the forefront of growth for the economy as a whole. The financial sector, including banks, insurance companies, financial intermediaries, investment banks and fund management companies play important roles in the economy. They function as a primary driver of economic growth. Banks facilitate growth and development of businesses and encourage consumption growth through provision of credit. They channel resources to the needy ones. They also contribute through generation of direct and indirect employment. Banks function as the conduits through which the benefits of monetary policy changes influence the economy. Banks adjust the quality, quantity and cost of credit to match the policy direction set by the QCB. They also play an important socio-economic role through employment of female workforce and responsible management of private wealth. More importantly, financial sector companies are important players in implementing the policy of diversification undertaken by the Qatari government in order to increase focus on non-oil and gas sectors of the economy. Banks and insurance companies are important investors in domestic and foreign financial markets. They also add to the capital expenditure of the country through acquisition of assets. Banks, brokerage houses and the Doha Securities Market help to generate liquidity in the equity instruments of companies. The contribution of financial sector of Qatar to the GDP has been increasing steadily. The sector also contributes indirectly through credit channel. It is observed that the banks have embarked on a massive credit expansion during the recent years which could have played an important role in the steep growth seen in the national product. The banks and insurance companies also employ qualified candidates from among the work force at higher than average salaries. Finally, banks have been championing the government's drive to increase the contribution of private sector through increased lending.

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