economic impacts

Macroeconomic Effects of the (2008-09) Global Financial Crisis on the Arab Countries
AlaaIhsan Salloom
Research Scholar in the Department of International Economy, Jilin University
2699, Qian Jin Da Jie, Changchun, P. R. China
E-mail: [e-mail]
Yibing Ding
Professor of International Economics, School of Economics, Jilin University
2699, Qian Jin Da Jie, Changchun, P. R. China
E-mail: [e-mail]

Abstract
It is difficult to find an economy in the world that was not affected by the (2008-09) global financial crisis, even indirectly. No region has been able to shield itself from the impacts of the crisis, and Arab region is no exception. Arab Economies have been affected by the (2008-09) global financial crisis through extensive decline in trade, sharp fluctuations in the oil market, and reductions in financial investment, remittances and other capital flows. The main purpose in this paper is to explore the nature of the macroeconomic impacts of the (2008-09) global financial crisis on the Arab countries, and clarifies vulnerability of Arab economies to external shocks, and presents key policy implications for the Arab governments to lessen the effects of the financial crises in the future.

Keywords: The (2008-09) global financial crisis, Macroeconomic Impacts, External Shocks, Arab countries.

Introduction
Despite financial crises are not new phenomena, the (2008-09) global financial crisis differ from previous financial crises in consequences. The (2008-09) financial crisis has been described as the worst global financial crisis have experienced since the Great Depression in the 1930s. Due to that it has caused a severe global recessionin most developed countries and has affected growth prospects in developing countries, and it was the largest financial loss in economic history. This worldwide economic recession led to a sharp decline in the demand of oil, food, and other commodities. Although their happened several financial crises in the past but the economist still not realize a lesson from them. “We all lived happily for a while — but not for ever after”.1
The global financial crisis began with the insolvency of major financial institutions in the United States in September 2008, it spread to theentire U.S. financial system and from there it started unfolding to the Europe, Asia and rest of the world.In general, the current literature suffers from a scarcity of research on the macroeconomic impact of the (2008-09) global financial crisis on the Arab countries. Much has been written on the impact of the (2008-09) global financial crisis on America, Europe and Asia but only little on the Arab countries.
This paper makes an attempt to take effects of the (2008-09) global financial crisis on economic performance of Arab economies. From here comes the signification of this paper in the necessity of provides a regional perspective on how the crisis are impacting ofmacroeconomic conditions for the Arab countries, and to what external shocks effect on the Arab economies.The problem is raised by the fact that Arab economies depend on primary goods for exports. Indeed, the share of oil exports in total exports is about 75 per cent for the Arab region and some of the Arab GCC countries more than 79 per cent of total exports.
The pre-crisis Arab Economic Performance
Many Arab countries have performed fast economic growth during the 2003–08 oil booms. According to the IMF’s Regional Economic Outlook: the oil boom in Middle East and Central Asia, led to an increase in reserves for Arab countries from 163.9 billion dollars in 2002 to 198.3 billion the following year, and which then reached 476 billion in 2006 and 591.1 billion in 2007. And the wealth of the Arab oil countries estimated to have reached USD 1.5 trillion in 2008.2 Between 2006 and 2008, annual GDP growth in real terms reached 5.9% for the Arab region as a whole (see Table 1.1). In broader terms, regional economic growth has been spurred by oil revenue, real estate investment, housing, tourism and foreign assistance, rather than by productive activity.
Table 1.1: Economic Growth in Arab Countries (Annual Rate of Growth)
Country
2006
2007
2008
Algeria
1.8
3.1
2.8
Bahrain
6.7
8.4
6.3
Djibouti
4.8
5.2
4.0
Egypt
6.8
7.1
7.2
Iraq
6.2
1.5
7.8
Jordan
8.0
6.6
5.6
Kuwait
5.2
4.4
8.5
Lebanon
0.6
7.5
8.0
Libya
5.9
5.6
6.0
Mauritania
11.7
1.9
3.5
Morocco
7.8
3.2
6.2
Oman
7.5
5.8
6.4
Qatar
12.2
17.3
13.4
Saudi Arabia
3.2
3.4
4.2
Sudan
11.3
10.2
6.6
Syria
5.2
6.3
5.1
Tunisia
5.7
6.3
4.6
UAE
14.9
6.0
7.4
Yemen
3.2
3.5
3.2
Arab World
6.3
5.2
6.2
Source: Country Reports, December 2009.
The Gulf sub-region is the richest, with an average per capita GDP of $27,000, compared to an overall Arab average of about $5,700. It contributed close to $850 billion to Arab GDP in 2008, or about 53% of the total. The higher oil prices, which greatly assisted the Arab oil-exporting economies, and at the same time had a beneficial effect upon the other Arab economies through spillover effects, such as migration, workers’ remittances, the transport and delivery of oil and oil-related goods and services and foreign direct investment (FDI). As it was also an increase in intra-regional investments. Nearly half of the pre-crisis FDI came from within the Arab region, of which nearly 60 per cent came from the UAE and Saudi Arabia.
In some Arab countries, exports oil and gas, and tourism capital inflows play a major role in the economy. Tourism provides 450,000 jobs in Tunisia, 1.5 million in Morocco, 3 million in Egypt, 420,000 in Jordan and 900,000 in Syria. The Arab countries benefited disproportionately from the global boom in tourism during 2002–2008. On average, they had a per capita income of US$68 from tourism in 2008 compared to US$4 in sub-Saharan Africa, US$9 in South Asia, US$50 in East Asia and the Pacific and US$96 in Latin America and the Caribbean.3 Remittances have played a significant role as valuable contributions of household welfare and national income. The Arab oil-importing countries (Jordan, Lebanon, Morocco, the Palestinian Territories and Tunisia) have benefited greatly during the boom of 2002–2008 from the rise of international remittance flows, revenues from tourism and official development assistance. On average, its inhabitants received US$104 from abroad in 2008 compared to an average of US$54 for all developing countries (East Asia and Pacific: US$37, South Asia: US$45, Latin America and Caribbean: US$120, sub-Saharan Africa: US$32). As a result, when international remittances quadrupled between 2000 and 2008, the Arab countries as a whole again benefited more than other world regions.4 According to the World Bank, workers’ remittances have witnessed a rising trend in the Egypt, Jordan, Lebanon, Morocco, Tunisia, and Djibouti. In 2007, remittance inflows made up around 9 % of GDP in Morocco, 5 % in Tunisia, and 2.2% in Algeria. Total remittance inflows reach $27 billion for Egypt, Lebanon, Jordan, Tunisia and Morocco taken together and account for about 15% of GDP in Jordan, which is the most dependent country on expatriate remittances.
External Shocks and Vulnerability of Arab Economies
Vulnerability is a term which is widely used by different disciplines, such as economics, sociology, anthropology, environmental science and health, each assigning different meanings to it. Therefore in the literature there are a multitude of definitions for vulnerability.5
In this paper, vulnerability is defined from an economic point of view. It is defined as the exposure of an economy to exogenous shocks, arising out of economic openness. A shock, by definition, is a change in external environment that affects the functioning of the economy in question. If it temporarily or permanently disables the workings of the economy significantly; then the economy is said to be vulnerable to such a shock. On the other hand, if an economy has the policy induced to withstand or recover from a shock it is said to be resilient to it.In many instances, vulnerability is visible and can be defined explicitly. For example, least-developed economies are identified as “vulnerable economies” and this term is widely used by the international institutions.6 However, in some cases the vulnerability of an economy may not be that explicit. An economy may perform rather successfully under “normal” conditions, but may be excessively sensitive to particular external shocks. Such a “latent vulnerability” may create more problems than the explicit vulnerability, since the signals that the economy transmits under normal conditions may not be sufficiently alarming for the economic decision-making bodies. In such economies those signals can easily be interpreted as “temporary nuisances” and therefore the necessary decisions may not be taken. Therefore, the “latent vulnerability” concept can help explain why the Arab economies were affected so badly during the (2008-09) global financial crisis.
Vulnerability may be analyzed both with respect to its sources and by distinguishing its various effects on the economy. Obviously such analysis needs to be done by explicitly taking into account the multi-dimensional nature of the vulnerability concept. With respect to sources, in general, researchers pick one source and analyze its effects. (Such as financial shocks, climate change, political shocks). In order to capture the diverse effects of a shock on the economy, economic vulnerability indices are developed.7 The impacts of the crisis on the Arab countries have varied substantially depending on highly different pre-crisis macroeconomic contexts, their direct and indirect trade links to crisis affected countries, the structure of trade, the share of remittances and private financial flows. The Arab countries characterize by Vulnerability to trade shocks, and it has determined by Arab’s high dependency on exports, undiversified commodity exports. The GCC countries are heavily reliant on oil export (and thus sensitive to shocks in oil prices). As well as the Arab economies depends crucially on the nature of the shock, its transmission mechanism, through sharp changes in commodity prices, reductions in investment, trade, remittances and other capital flows. An external financial shock such as the (2008-09) global financial crisis not only affects the financial sector of a country but can easily spread to the real sector as well. The crisis led to a sharp decline in the international financial flows, which inevitably, affected the behavior of the financial institutions in developing economies. Some of them, like the Arab banks, faced tighter financial constraints. The (2008-09) global financial crisis had a direct negative impact on Arab region. The effects of the crisis on the Arab Economies were much worse through a decline in world demand for primary commodities exports. This may reflect as a decline in export prices (especially oil prices). Arab region was also hit by the secondary effects of the crisis on trade, remittances, and FDI. The Arab Economic Developments are summarized in the following table:
Table 1.2 The Arab Economic Developments as result of crisis
Macro Variable
Direction of Change
GDP Growth Rate
Sharply declined and became negative for some Arab Economies
Financial Inflows slowed down sharply and lowered aid
Foreign Trade
The value of export revenues reduced sharply
Remittances
The volume of remittances outflows diminished sharply
Unemployment Rate
Sharply increased and remained around its new high level
Source: Own work based on results of crisis
The Effects of the Crisis: The key Channels of Transmission to Arab Region
The (2008-09) global financial crisis that originated in the financial sector of developed economies and then hurt the real sector of those countries has gradually transmitted to Arab countries via several transmission channels with negative spillovers.
According to Kindleberger (1978) describes their international transmission as taking place through a variety of channels: “…psychological infection, rising and falling prices of commodities and securities, short-term capital movements, interest rates, the rise and fall of world commodity inventories”.8
From the above perspective the effect of a financial shock on open economies, such as Arab countries can be analyzed by focusing on the following three main transmission channels:
1. The Financial Channel
One of the important channels for transmission of the crisis from developed to developing countries has been via capital flows. The first financial shock wave was felt in Arab stock markets, which had traditionally suffered from high degrees of fluctuation.
Several Arab markets are not much integrated into world markets, while GCC markets suffered heavily from a sharp though probably transitory decline in world market prices. Therefore, the financial sector in the other Arab countries was less exposed to the global financial turmoil than that of GCC countries. Hence, some Arab Countries characterize by Vulnerability to financial shocks. Early impact of the crisis on Arab stock markets was visible in countries with strong links to global financial markets; the stock prices in the Arab oil exporters have dropped rapidly.
On average, the stock market indices of the Arab countries crashed by more than 50 per cent between their peak in mid-2008 and their low in early 2009, thereby causing losses of something between US$200 billion and US$600 billion (see Table 1.3). These losses were particularly high in the GCC countries, with Dubai having been hit the worst. The stock markets in Jordan, Morocco and Lebanon have been less affected.
Table 1.3: Percentage change in the Arab stock market indices, January 2008 to August 2009
Arab stock markets
Percentage change
Palestine Securities Exchange
-14
Beirut Stock Exchange
-35
Doha Securities Market
-36
Kuwait Stock Market
-41
Abu Dhabi Securities Market
-42
Egypt Capital Market
-45
Bahrain Stock Exchange
-47
Muscat Securities Market
-49
Saudi Stock Market
-51
Dubai Financial Market
-70
Source: Arab Financial Market Resource Centre Online Database, 2009
Declines in stock market prices and housing prices have contributed to reductions in the capital of banks, causing many to reduce lending in order to shore up their capital. The crisis has affected indirect financing, whether funded by local banks (which have become more reluctant to lend) or by foreign banks, with limited lines of credit. Sudden funding problems emerged as a result of the freezing of international wholesale debt markets, while the collapse of the real estate market threatened the solvency of several GCC banks. As a result, credit growth plummeted between September 2008 and September 2009, while many projects at different stages of planning and implementation were placed on hold by the end of 2009.In turn this has led to reduced investment, lower growth, and increased unemployment.
Financial institutions and real estate developerswere adversely affected by the global financial crisis. The financial institutions in the GCC faced constrained financing conditions, and enduring losses from exposure of the local stock and real estate markets, both of which had experienced bursting bubbles.These developments, along with the decline in the price of oil, led to a sharp decline in stock prices after June 2008.
The wealth effect mainly Sovereign wealth funds (SWFs) in the Arab region have suffered great losses as a result of the crisis through the sharp decline in the stock markets and real estate prices in the United States and Europe. The wealth effect was felt by some Arab countries much more than by other countries in the world, because few other countries had accumulated similar quantities of foreign assets prior to the crisis.
According to many analysts, the sovereign funds of the Arab oil exporters could be exposed to losses reaching as much as 40 per cent, particularly with respect to funds maintained in the perceived stable American banking system.9 The major loss was recorded by those funds that invested heavily in stock markets in the United States, particularly in financial institutions, such as banks and insurance companies. The sovereign funds of Kuwait and the UAE experienced particularly large losses.10 FDI inflows have declined in the Arab countries during 2009 by an average rate of about 30 per cent. However, a decrease of this kind is much less dramatic for the Arab world than it would be for other regions, because even before the crisis, the Arab countries had not been able to attract much FDI other than in the oil sector from outside the area.11
2. The Real Economic Channel
The second channel for transmission of the global economic crisis to Arab countries was primary commodities markets. The global economicrecession led to a significant decline in the prices of key commodities exported by Arab countries since the second half of 2008. In particular, the global economic downturn resulted to a sharp decline of the oil prices (a trade shock). After reaching a high of $133 per barrel in July 2008, the price of oil fell more than 70%, to be low of $39 per barrel in February 2009 (see Figure 1.1). Consequently the main external effects of the crisis are transmitted to Arab oil-exporting countries through the oil price. The impact of oil price changes on a given country depends on whether it is a net oil importer or exporter, its degree of oil dependency, and how its terms of trade are affected.
Indeed, oil prices affect the main economic variables in Araboil-exporting countries: earnings, government budget revenues and expenditures and aggregate demand. During this period, OPEC organization also implemented a production cut to stabilize the price. The combination of lower price and decreased output in Arab oil-exporting countries led to a significant loss of oil revenues for Arab oil-exporting countries. The sharp decline in oil revenues reduced the fiscal revenues of those countries. This has implications for the economies of Arab oil-exporting countries, particularly Arab GCC countries which rely heavily on oil exports. The GCC economies highly depend on oil revenues, due to that oil accounts for more than 90 percent of its exports, 25 percent of its Gross Domestic Product, and 80 percent of its government total revenues. Thus, a small oil price changes canresult in severe macroeconomic impacts. So the Arab GCC economies are highly vulnerable to oil price fluctuations.
The situation was more precarious for Iraq, Oman, Bahrain and Yemen. According to IMF estimations, these countries need an oil price of US$110, US$77, US$74 and US$90, respectively, in order to finance their government budgets from their export income, while for Algeria and Saudi Arabia some US$50–60 is sufficient, and Qatar gets along with a price of about US$25.12
Figure 1.1: Price of crude oil in Arab oil-exporting countries (West Texas Intermediate, monthly average $/barrel)

Source: U.S. Energy Information Administration, www.eia.doe.gov.
The non-fuel commodities prices have declined by 29 per cent in January 2009. In general, the volume of non-fuel exports from the Arab world is small and very much concentrated on a few countries and items. Only Tunisia and Jordan have non-energy exports worth more than 20 per cent of their GDP. Because 45 per cent of its exports are directed towards the EU, Tunisia is the Arab country that has been hit hardest by the global decline in the demand for manufactured goods.13
Several Arab countries (especially Egypt, Morocco, Tunisia, Jordan, and Lebanon) rely heavily on tourism as an important source of service sector jobs and foreign exchange revenue. Tourism sector in these countries has suffered a sharp decline because consumers in higher-income countries have become much more prudent and economic in their spending. Egypt reported a 9.5% decline in revenue from tourism in the first half of 2009 as compared with the first half of 2008.14
As the tourism industry is inextricably linked to various industries and services, the global slowdown in the tourism industry had anegative impact on many other sectors as well, including construction and building, banking and insurance, and transportation. Some Arab countries such as Morocco, Tunisia and Egypt have a strong trade and tourism linkages with Europe and OECD. These countries felt the impact of the crisis on their real economy as early as the last quarter of 2008 where global recession spread across Europe and other export markets and affect severely the exporting countries and the export of services (especially tourism and transport).
3. The Resource Transfer Channel
The Resource transfer Channel is the most indirect and lagged effect of the (2008-09) global financial crisis. Remittances and the official development aid (ODA) are the two main sources of international transfers.

Remittances are an important source of external capital for many Arab countries. Worker remittances in Jordan, Morocco, Egypt, and Tunisia accounted in 2007 for 22.7%, 9%, 6%, and 5%, respectively, of their GDP.15 Morocco and Tunisia also receive significant remittances from migrant workers abroad who are living in Europe rather than the GCC countries. The remittance incomes of Arab countries enjoyed positive growth in 2008 before being adversely impacted by the global crisis in 2009.
The global economic downturn in Europe has reduced job opportunities for Morocco and Tunisia workers,and as a result, the volume of remittances has diminished. Morocco, for example, reported a 12.5% decline in its remittances between June 2008 and June 2009. The GCC countries are the major source of remittances for Lebanon, Palestine territories, Syria, Egypt, Sudan, Yemen, Djibouti and Jordan; downturns in tourism and real estate construction in GCC countries have reduced job opportunities for migrant workers.16
Several Arab economies are heavily dependent on the dynamics of the external aid during recent years. The official development aid has become a significant proportion of their GDP; particularly in Arab countries affected by conflict such as Iraq, the Palestinian Territories, Sudan, and Lebanon, though amounts fluctuate greatly. Iraq and the Palestine territories, which receive 50 and 10 per cent of total aid flows to the Arab region, have aid-to-GDP ratios of about 70 and 25 per cent respectively.17
Other countries record much lower aid receipts, but they are still US$115 per capita for Jordan, US$68 for Lebanon and US$38 for Tunisia, and the Arab region as a whole receives almost 20 per cent of total global aid. Nevertheless, most of these countries will probably not be affected by any reduction in development assistance because the support is given to stabilize these countries politically and to avoid any kind of armed conflict.
Some of Arab countries as Lebanon, Jordan and Djibouti have a strong linkage with GCC countries through ODA, these countries became worsen after the crisis due to sever contraction in the stock markets, real estate, tourism and declining oil prices in the GCC countries. As some major donor countries are moving into recession and increasingly face domestic fiscal pressures, thelevel of development assistance received from donor countries as well as from international organizations has declined as a result of the crisis.18
The Effects of the Crisis on Real Economic Variables
The world economic history has documented the association of financial crises with contemporaneously reduced values of economic growth. The historical experience from past crises and recent economic forecasts suggest that it might take, on average, the best part of the next four to five years for most economies to recuperate the level of economic growth they had at the onset of the crisis.19
It is clear that the (2008-09) global financial crisis and associated economic recession in the major capital markets have reflected primarily in the decline in exports of Arab countries. Most the Arab economies have maintained positive GDP growth rates in 2009, Only Kuwait, Saudi Arabia and the UAE have suffered from a slight decline in GDP and this decline had a significant impact on oil GDP output. The economic growth of Arab countries experienced lower rates of real GDP growth in 2009 (see Table 1.4).
Table 1.4: Economic Growth in Arab Countries, 2009-10 (Annual Rate of Growth)
Country
2009
2010
Algeria
2.6
4.6
Bahrain
2.9
3.7
Djibouti
6.4
5.8
Egypt
4.7
5.4
Iraq
5.0
6.2
Jordan
3.1
3.0
Kuwait
-1.7
3.7
Lebanon
5.1
5.8
Libya
4.0
4.6
Mauritania
1.5
3.0
Morocco
4.0
3.8
Oman
2.4
3.9
Qatar
8.9
23.5
Saudi Arabia
-1.0
3.2
Sudan
3.8
4.7
Syria
1.9
4.1
Tunisia
1.2
2.7
UAE
-3.5
3.5
Yemen
3.8
5.0
Sources: The World Bank, 2009, Country Reports, December 2009.
During the second phase of the crisis, the negative spill-over affects hit real economic activities for the Arab countries and their growth models. For the Arab oil-exporting, the slower economic growth is partly due to a decision by OPEC to reduce its oil production by 2.2 million barrels per day andfall in hydrocarbon receipts, deterioration in their terms of trade. The combined effect of the lower demand for oil, the lower oil output hasled to a reduction in the value of Arab oil exporters’ oil sector GDP in real terms. As a result, the balance of payments surplus of Arab oil exporters crashed from US$380 to just over US$50 billion. Economic performance in the non-oil sector of the GCC countries has been adversely affected by a slowdown in real estate activity. For GCC countries as a group, Real GDP growth has slowed down from 6.4% in 2008 to 0.7% in 2009.20
In the Arab oil-importing countries, the tourism and export sectors have suffered as a result of the weakness in global demand. For example, Tunisia has been hit hardest by the global decline in the demand for manufactured goods. Morocco and Syria have also seen a slight reduction in their leather exports. Egypt’s manufacturing exports, which grew by more than 50 per cent in 2008, have decreased by 10–25 per cent in 2009. Jordan’s exports on the other hand have hardly been affected by the crisis at all. The slowdown in Arab economies as a group is not significantly different from that in other developing economies. The economic growth rate for the developing economies as a group fell from 6% in 2008 to 1.9% in 2009. The Arab oil importers fared better than this: All of them enjoyed 3% or more growth rates in 2009. The Arab oil exporters, on the other hand, economic growth rate grew by only 1.4%. The global economic downturn in developed countries negatively affected the exports of most Arab countries. Impacts of the crisis on the Arab economies include; low prices in commodities and fall in prices of oil and non-oil products. As a result, most oil-exporting countries in the Arab region have temporarily experienced a 50–75 per cent reduction in their export revenues and a subsequent 50 per cent reduction in their GDP; thereby theeffects of the crisis have not confined on the financial sector but affect the real economy as well.
High unemployment has been a problem in Arab countries for years, and the (2008-09) global financial crisis has dimmed prospects for improvements in the near term. Rising unemployment is posing a major challenge for Arab countries, particularly youth unemployment.21 The impact of the crisison employment has beensignificant in some countries. The International Labor Organization (ILO) has estimated that the unemployment rate in the Middle East and North Africa has increased by 25% and 13%, respectively, in the period from 2007 to 2009.22
The regional unemployment rate still remains one of the highest in the world. The latest estimates by the ILO (2011) indicate that all regions experienced high youth unemployment rate in 2010. Region-wise unemployment trends show that Middle East experienced the highest rate of youth unemployment rate of 25.1 percent in 2010, followed by North Africa (23.6 percent); Southeast Asia and Pacific (14.2 percent); Sub-Saharan Africa (12.3 percent); and South Asia (9.5 percent). Further, 40 percent of the Middle East and 32 percent of the North African working population live on less than $2 a day.
A mid-October assessment by the ILO put the 2009 unemployment rate in the Arab world in the 9%-11% range.23 The Arab Labor Organization has estimated the unemployment rate in the Arab world at a much higher rate of 17% as of December 2009 and has blamed the global financial crisis for the loss of hundreds of thousands of jobs in Arab countries.24
According to a recent study by the Center for Trade Union and Workers Services in Egypt, more than 347,000 job opportunities in that country were lost during the second half of 2008 as a result of the crisis.25 In Morocco, the unemployment rate rose in 2008 and in early 2009, employment in the industrial sector is still weak and contributes to high urban unemployment (12.6%). Despite increased government support for the export-oriented industries, some 7,000 industrial and handicrafts jobs disappeared in the second quarter of 2009 as a result of declining exports.26 In Tunisia, which was particularly vulnerable in terms of trade impact because of its high dependency on exports to Western Europe (77 percent of total exports in Tunisia go to the EU); the overall unemployment rate remained high at 14% in 2009.
The diminishing scale of economicactivity inEurope and GCC countrieshas forced tens of thousands of Arab migrant workers to return home, and their return has put added pressure on labor markets in Egypt, Jordan, Lebanon, Syria, Morocco, Tunisia and Yemen. The decline in remittance income, along with rising unemployment, has increased the incidence of poverty in many Arab countries.
Conclusions
The Arab countries were unable to escape the adverse impact of the severe worldwide economic recession. Despite increased diversification efforts, the Arab region still relies on hydrocarbon industries. This makes the Arab economies vulnerable to external shocks. The Arab region comprises a diverse range of countries with very different assets and social and political conditions. Those with oil revenues countries such as Saudi Arabia, Kuwait, and Qatar have some financial cushioning from external shocks but are nevertheless experiencing a sharp downturn in revenue. In countries without substantial financial capacity such as Lebanon, Jordan, Syria, Egypt, Morocco and Tunisia, the drop in economic growth has been felt more acutely. Therefore, the (2008-09) global financial crisis has had a significant negative influence on Arab economies. The degree of the impacts of the crisis varies considerably among Arab countries, but all countries felt their effects, either directly in the form of the financial sector pressures, tighter liquidity, falling property values, deterioration in their terms of trade, sharp falling in oil prices and turmoil in international stock markets, decreasing overall financial wealth through losses incurred by sovereign wealth funds. Arab Economies were also hit by the secondary effects of the crisis through job losses, decreased remittance inflows and reduction of tourism revenues, decline of official development assistance, sharp correction of financial flows, and growing unemployment resulting from laid-off workers in Arab countries labor markets.
Arab Economies will need to take decisive action to formulate a broad reform agenda (aimed at fostering inclusive growth), while maintaining economic stability, to build confidence, Organization and governance: Ensure clear responsibilities and limits to delegation.Creation of jobs requires new investment, the pre-requisites of which include political and economic stability, existence of proper legal and regulatory framework, appropriate policy environment, existence of basic infrastructure, and adequate economic incentives. In order to tackle youth unemployment, the governments of a number of countries in the Arab region are implementing speedy reforms at the political, economic, and social fronts in order to improve the lives of ordinary citizens. They are implementing short-term and long-term reforms both at the political and socio-economic fronts. Particularly, the governments’ spending programs are focusing on providing unemployment benefits and insurance schemes; increasing social inclusion; improving quality and relevance of education; and adopting labor-intensive projects.