In my series of articles in Gulf Times, I examine the question as to what extent the banking sector has been successful in aiding the diversification of Qatar’s economy. In order to properly answer this question, it is necessary to understand the interrelationships between Qatar’s financial sector and the wider economy.
The strong connection between financial sector development and economic development has been well-established and accepted in the field of economic study. The strength of this relationship was clearly seen with the global financial crisis of 2007-2008, demonstrating how the financial sector can have devastating effects on the real economy in times of financial crisis.
A difficult question tackled by many economists is who takes the lead in this relationship: does the financial sector spur economic growth or is it a result of economic growth? Although very much open to debate, a common position put forward in the mainstream media is that finance is a leading sector in the process of economic development.  It is the lubricant of the main engine of growth; better financial services improve and accelerate economic growth while financial repression slows economic growth.
Contrary to this common position, financial sector development in Qatar has followed its economic development and is conditioned by that development. This is due to Qatar’s very specific type of economy and history. The unprecedented expansion and growth of the Qatari economy based on the hydrocarbon industry over a very short period of time created a demand for a variety of financial instruments and subsequently the banking and financial system witnessed substantial changes and development. If the critical question of which sector, financial or real economy, led the process of economic development, the answer is undoubtedly the growth of the real economy led to changes in the financial system of Qatar, supported and encouraged by the government.
This has implications for the ability of the banking sector to aid economic diversification, but it is important to recognise that the relationship between Qatar’s financial sector and the economy is becoming more dynamic and complex over time. The markets of developed countries took a long time to mature and to establish highly advanced financial sectors that provide the essential financial instruments and products to facilitate the growth of their economies. By comparison, Qatar’s financial sector is still nascent, but its ability to influence the broader economy has substantially increased over a short period of time and can only grow in significance.

* Dr Abdulaziz A al-Ghorairi is senior vice-president and group chief economist, Commercial Bank.