1. QNB Economics
economics@qnb.com.qa
23 June 2013
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1
Ample GCC Liquidity Will Continue to Finance Growth,
According to QNB
GCC countries continue to have ample liquidity
to finance the large investment projects planned
over the next few year, according to QNB Group.
GCC liquidity, as measured by the money supply
(M2), increased by 11.9% year-on-year (y-o-y)
during the first quarter of 2013 to reach
US$860bn. This represents a further increase in
the growth of M2, compared with 2012 (10.4%).
Higher energy prices and increased
hydrocarbons production are feeding through to
the non-oil sector through higher liquidity. This
higher growth in the GCC money supply enables
the private sector to expand economic activity.
GCC Money Supply (2010-13)
(total M2* in US$bn)
*M2 = M1 + Quasi Money
Source: Central banks, Bloomberg and QNB Group analysis
The narrower definition of the money supply
(M1) in the GCC increased rapidly (16.8%)
during the first quarter of 2013, while medium
term deposits (quasi-money) went up more
moderately (7.7%). The main reason behind a
higher increase in the narrower definition of the
money supply is associated with the low
interest rate environment that has been
prevalent in recent years, which encourages
depositors to hold short-term deposits.
Money Supply by Country (Mar 2012-Mar 2013)
(% growth in M2)
Source: Central banks, Bloomberg and QNB Group analysis
According to QNB Group, Qatar recorded the
highest money supply growth rate in the region
during the first quarter of 2013 (37.4%). During
the first quarter of 2013, the money supply
growth was mainly driven by higher private
sector deposits, while in 2012 it was due to
11.6%
11.9%
10.4%
58%
42%
819
2012
53%
47%
742
2011
46%
48%
54%
769
Mar 2013
52%
Mar 2012
860
55%
45%
2010
665
M1
Quasi Money
2227
102
83
240
295
2429
109115
249
334
Kuwait
37.4%
4.0%
6.9%9.6%
7.6%
13.2%
BahrainOmanQatarUAESaudi
March 2013
March 2012

2. QNB Economics
economics@qnb.com.qa
23 June 2013
foreign currency deposits from the public sector.
According to QNB Group, this reflects a
significant shift in trend, compared with the
traditional source of money supply growth in
Qatar, which may indicate a higher growth
contribution from the non-oil sector.
According to QNB Group, Saudi Arabia has the
largest money supply in the region. Broad
money (M2) expanded by 13.4% y-o-y in the
Kingdom, reflecting a significant increase in
demand deposits (18.9%). Saudi Arabia has a
different money supply make up as compared to
other GCC countries, with a predominance of
short-term deposits. As a result, the narrower
definition of the money supply (M1) accounts
for three quarters of broad money.
Money Supply growth in the UAE witnessed a
major recovery in the first quarter of 2013.
Broad money (M2) grew by 4.0% during the first
quarter of 2013. This recovery can be attributed
to the significant pick up in real estate activity
in recent months and the overall gain in
investor confidence.
Investment projects planned or currently
underway in the GCC are estimated by the
Middle East Economic Digest (MEED) at
US$2.2trn. With huge project financing needs
coming up over the next decade, GCC countries
will need to further supplement overall bank
liquidity with additional sources of funding. The
corporate debt markets have emerged as a good
funding option in recent years. During the year
up to June 2013, debt issuance in the GCC region
reached a record level of US$34.6bn, compared
to US$36.6bn for the full year 2012, according to
data from Bloomberg. The GCC countries have
also started developing their own domestic debt
capital markets as in Qatar.
According to QNB Group, these financial
developments will widen the overall funding
sources for GCC countries to finance non-oil
growth, even as domestic banks provide a core
source of funding, while reducing the
dependence on foreign financing going forward.