Islamic finance will need to play a pivotal role in meeting the increasing demand for funds by the Gulf Cooperation Council (GCC) governments, especially at a time of new oil order, where prices are expected to be in the range of $55 to $60 a barrel, according to a top economist of the Qatar Financial Centre (QFC).
“Meeting the governmental demand for funding by both local and regional financial institutions in light of the decline in oil prices is essential. To keep up with this demand, Islamic finance will need to play a critical role, which is both a challenge and an opportunity that will be tackled by the regional banking sector,” QFC chief economic adviser Dr Haitham al-Salama said.
Addressing the World Islamic Banking Conference (WIBC) 2016 in Bahrain, he said according to the latest analysis, oil prices are not likely to exceed $100 in the near future and are forecast to stay around the $55-$65 per barrel.
Oil prices, which were largely drifting low, found a new direction after the Organisation of the Petroleum Exporting Countries in its November meeting decided to cut the daily production by 1.2mn bpd, effective from January 1, in an effort to “rebalance” an over-supplied global market.
Prices would eventually go down as drilling technologies advance and lead to lower cost of production of shale oil, al-Salama said, adding this puts further emphasis on the economic diversification efforts of oil producing countries, particularly in the GCC.
“Collectively, we have long calculated this and worked towards diversification, this can be seen by the various national visions across the GCC,” he said, adding the regional governments have taken quick and necessary measures to address the decline in oil prices, in an effort to create diversified revenue streams.
Qatar has already taken various measures to diversify the economy, which includes lowering the subsidies and cost optimisation in its sovereign and government undertakings apart from prioritising planned spending.
Finance Minister HE Ali Sherif al-Emadi had recently said Qatar would be spending another QR46bn in 2017 to upgrade its infrastructure in the run up to 2022 FIFA World Cup.
On a broader level, the GCC is also aiming to introduce value added tax in 2018, which has the potential to earn annual $25bn in revenues, according to Ernst & Young.
Al-Salama spoke alongside Dr Jarmo Kotilaine, chief economist of Bahrain Economic Development Board; Professor Humayon Dar, chairman and president of Edbiz Corporation; and Ikbal Dardeia, managing director and Head of Investment Banking in Bank AlKhair.
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