In July 2012, a Western expatriate travelled for work to Singapore. He bought 5,000 Singapore dollars in cash to take care of his immediate needs once he was there. He paid QR 15,000 to buy the dollars. Today, he would have to pay only QR 13,450, over 12 percent less, as the QR-Singapore dollar exchange rate presently is QR 2.69. In other words, a Singapore dollar can now be bought for QR 2.69 unlike in 2012 when the rate was QR 3.
That was the time the dollar was under pressure and so was the Qatari currency because of its peg to it (at a fixed rate of QR 3.64). Imports were becoming expensive for Qatar while exports were earning less revenue due to falling oil prices. Qatar must keep its riyal pegged to the greenback as long as the main sources of its revenue are from oil and gas exports – chiefly LNG whose prices are linked to those of crude.
For long, the euro had been ruling at all-time highs against the riyal and had even crossed the QR 5-mark a few years ago due to a constantly weakening dollar. Today, however, thanks to a strong recovery being shown by the US currency, the QR-euro exchange rate is at a historic low of QR 3.946. To put in simple terms, one must pay up QR 3.946 to buy a euro, the common European currency, demand for which is high in Qatar mainly from leisure travellers and importers of cars, consumer goods and machineries.
People literally paid through their nose when buying euro in those days while taking leisure trips to European destinations, and analysts rubbed salt in their wounds by critcising riyal’s peg to the dollar and demanding a review.
Travel agencies say more people were Europe-bound last year as the euro became a little cheaper. “This summer we hope tourist traffic from here to European destinations will really be high due to a falling euro,” a tour operator* tells bq.
However, while the euro has become less expensive, European goods being sold in the local market like cars and foodstuff are showing no signs of price readjustments or declines. Businesses attribute this phenomenon to rising rents and cost of doing business, while consumers are quick to criticise traders and dub them as exploitative. “Our experience shows that when the price of a commodity or service is up it never goes down,” Thomas, a long-staying expatriate, tells bq.
Looking at the broader picture, though, the US dollar has appreciated by almost 17 percent against major world currencies in the past year, and that explains why the QR is also stronger against those currencies. A QNB Group report published late last February warned the appreciation of the dollar, which is expected to continue in the near future, would harm the global economy as it would hamper growth in the emerging economies.
Rise of remittances
In Qatar, an appreciating dollar seems to be good news for expatriates of major Asian countries, particularly those from India, Nepal, Sri Lanka, Pakistan and Bangladesh, and not so much for those from the Philippines as its currency, the peso, doesn’t fluctuate much against the greenback. The currencies of India and some other countries have fallen so much recently, creating an impression among expatriates from these countries that they can now remit more funds home in exchange for the same amount of riyals they have been saving for years.
The Indian rupee has, for example, lost as much as 90 percent of its value against the QR (due to its peg to the dollar) in the past 20 years.
Nearly half of this value is lost in the past five to six years alone, as the depreciation of the Indian rupee was marginal between 1995 and 2002, foreign exchange operators tell bq.
Exchange houses active on the Asian sectors say remittance volumes have risen in the past several years but that is not due to the currencies of these countries having become cheaper. It is because the number of expatriates from these countries has been going up at a rapid pace.
Not surprisingly then, workers’ remittances have increased hugely in the past six to seven years.
For instance, Qatar’s population was 1.44 million in 2008 and workers’ remittances totalled QR 19.54 billion (USD 5.36 billion) in that year amid more than 80 percent of the population comprising foreigners.
In 2013, the country’s population crossed the two million-mark to reach 2,003,700, rising by about 40 percent in the preceding five years, but the remittances routed by foreign workers overseas had more than doubled to QR 40.55 billion (USD 11.13 billion). These are the figures made available by the Ministry of Development Planning and Statistics in its report released on October 3, 2014.
Latest data show that Qatar’s population was at an all-time high of 2.33 million by February-end 2015, and if exchange houses and bankers are to be believed, worker remittance volumes are expected to touch or even cross the QR 50 billion-mark by 2014-end.
However, according to bankers and consumer rights activists in some Asian countries, including India, what most Gulf-based expatriates from these countries fail to realise is that while their power to purchase the currencies of their countries increases every time the dollar appreciates, they need to remit more funds home for expenses due to rising inflation.”And if they are saving more back home, rising prices would surely eat into the growth in their investment,” a banker* tells bq.
Is the dollar peg good?
True. The Indian rupee is a good example in this regard, according to bankers. The currency has depreciated from Rs 14 levels (one Qatari riyal buying 14 Indian rupees) a few years ago to almost Rs 17 today, an over 20 percent fall in its value. But back home, prices have risen at almost the same pace, if not more, ever since, making the depreciation meaningless for Indian expatriates in Qatar. This is rather true of expatriates from all Asian and other countries whose currencies have been taking a beating against the dollar.
Recently, through a casual report quoting senior central bank officials of some GCC countries, Reuters kicked up a debate as to how good the dollar peg was for the GCC economies. Bahrain central bank’s chief said it would be risky if the Gulf countries changed their monitory policies and operated more independently of the US.
A Qatar Central Bank official, Khalid Al Khater, argued in remarks to Reuters that GCC states had failed to diversify their economies away from oil revenues so far. He urged these countries to focus on demand-side projects like human resource development rather than supply-side projects like real estate, in order to accelerate their diversification effort.
To make the whole issue simple to understand, experts say as long as the GCC countries do not sufficiently diversify their economies, their dependence on oil and gas exports for revenue would prompt them to stick to the dollar peg. This, because if they don’t peg their currencies to the greenback, these currencies would behave weirdly if oil prices fall (as they are doing now) and that would negatively impact investment flows into these countries.