Five implications of appreciating ASEAN currencies for the GCC

Forecast from Steve Troop, CEO of Barwa Bank, Qatar

Heading one of the fastest growing Islamic banks in Qatar, Steve Troop, CEO of Barwa Bank, has a wealth of experience and knowledge to draw on regarding financial services across borders. With the ASEAN region a key market for Qatar, its importance underlined by Qatar’s requirement for ASEAN foodstuffs and many ASEAN nations dependent on the small gulf nation for energy, fluctuations in currency levels between the two regions matter, a lot.

Here, Steve Troop outlines his forecasts for the appreciation of emerging market currencies — and ASEAN currencies in particular — which may have a number of implications for the economies of the Gulf and their dollar-pegged currencies. A shift to this tune could result in these five consequences:

Cheaper energy for ASEAN

The Gulf’s hydrocarbon exports become more affordable in faster growing ASEAN countries. This is positive for both production in the Gulf and sustained growth for ASEAN countries, many of whom are import-dependent on energy supplies.

Pricier food for the GCC

Imports into the Gulf — particularly foodstuffs (rice, wheat, barley), much of which comes from ASEAN — may well become more expensive in local currency terms with inflationary implications for the Gulf states. Food prices are always sensitive (even in the relatively wealthy nations): government subsidies are already in place for some food staples in the Gulf and price-equalisation will cost Gulf governments more money. (Given the fiscal position of the majority of the Gulf countries, this is not seen as a significant issue.)

ASEAN contractors eye more GCC deals

Inward investment into the Gulf becomes less expensive for ASEAN countries, though contracting work in the Gulf looks less attractive for ASEAN contractors, many of whom have, historically, been very keen on construction contracts particularly.

GCC investment into ASEAN slumps

Outward investment from the Gulf into ASEAN (where assets acquired are priced in domestic currency) will appear more expensive to Gulf investors. This may give pause for thought.

 Galvanise de-pegging debate

Recent currency moves may re-kindle (in our view, largely academic) conversations about “baskets” and a move away from outright pegging to the dollar: however, in our view, the moves do not have sufficient impact to sustain the argument. Gulf leadership is committed to the dollar-peg for the medium and long term given that the dollar is the government’s principal receivable for oil and gas exports.