Strategic Goal 3: Strengthening market infrastructure

The development of an active debt market in Qatar will have far-reaching benefits in deepening the financial infrastructure in Qatar. It will help to attract institutional investors to the State, and provide an important incentive for local investors to better manage their asset allocation process and therefore retain capital in the country. A well-developed debt market will also allow companies to diversify their sources of funding and reduce the cost of borrowing.

Government debt market
A deep and liquid government securities market facilitates monetary policy transmission, finances infrastructure projects and promotes financial market development. In the absence of any fiscal imperative for a government to mobilise resources, regular issuance of government debt is nonetheless necessary to support the development of the debt market. The lengthening of the maturity profile of debt issuance will also encourage the emergence of a risk-free yield curve across the term structure. In turn, the risk-free benchmark rate helps in the pricing of other financial instruments.

Moreover, government debt instruments provide additional tools to the QCB for liquidity management while enabling banks to comply with the regulatory requirements under the Basel III Liquidity Coverage Ratio. Regular issuance of debt instruments can be facilitated by public release of an advance primary market auction calendar while announcement of auction results would enhance market transparency.

With a view to establishing an effective debt management strategy, an independent debt office, the Office for Management of Credit Policies and Debt, has been set up in Qatar. The debt office is vested with the functions of: (i) framing strategies for financing of debt at least cost; (ii) analysing cash flows for effective debt servicing; (iii) adhering to the standards of creditors, investors, and credit rating agencies; (iv) managing interest rate, currency, and liquidity risks; and (v) improving the overall debt structure and credit ratings of Qatar.

The corporate debt market
One of the primary goals of developing Qatar’s financial markets is to encourage Qatari companies to raise funds from domestic sources and reduce their reliance on foreign funding. An important initiative in this context will be to establish general guidelines and policies to encourage corporate debt instruments issuance by Qatari companies.

Concurrently, the development of a commercial paper market and money market mutual funds will also be encouraged in order to help companies mobilise short-term resources. In this regard, regulatory initiatives have been taken to facilitate their outcome, for example the QFMA has issued rules for the Offering & Listing of Sukuk and Bonds.

Qatar is in the process of establishing domestic credit rating agencies and is developing a regulatory framework of rules and regulations for their licensing and oversight.

Broadening investor participation
In order to have a vibrant debt market, it is essential to have a diversified investor base in terms of time horizons, risk preferences, and trading motives. In this regard, there is a need to widen the participant base in the secondary market by including long-term institutional investors.

Institutional investors generally encompass pension funds, insurance companies and collective investment schemes (mutual/investment funds). These investors are among the major holders of fixed income instruments, with pension funds and insurance companies (the life insurance segment) a particularly important source of demand for longer-term securities.

In order to facilitate the growth of the institutional investment sector, the following steps will be taken: (i) supporting a review of the asset management framework and strategy for the public pension fund; (ii) facilitating the growth of the life insurance sector; and (iii) ensuring that the marketing, operation, regulation and supervision of collective investment schemes reflect international best practices.

Moreover, foreign investors can also play an important role in developing and deepening domestic capital markets – for example, non-Qatari sovereign wealth funds could become important players in the secondary market for Qatari debt instruments.