**5.4 Lessons learned from the global financial markets, global financial crisis and the potential for action to restore macroeconomic stability and sustainable growth in Arab countries**

The severity of the effects of the crisis on the performance of Arab economies varied. The economic performance of the countries of the first and second groups was affected more than the performance of the economies of the third group, because of the sharp decline in the (GDP) growth of the oil sector in them following the decline in global oil prices. It is worth noting that the growth in the non-oil sector (GDP) was the main driver for achieving growth rates in the (GDP) at constant prices in the first and second groups [4, 9].

Among the lessons learned, it became clear that the swiftness in the authorities in several Arab countries managing the consequences of the global crisis on their economies through the adoption of financial and monetary policies and procedures to address the negative effects of the crisis has succeeded in reducing the outcome of these effects on Arab economies. In general, the authorities were also able to intervene to activate various [10].

The existence of favorable conditions and space for policy alternatives (Space Policy), as well as the production and service sectors of the economy, which allows the employment of required policy tools to restore the national economy. For example, before the global financial crisis, the accumulation of financial surpluses stemming from increased oil income enabled a number of (GCC) countries Gulf Cooperation Council to pump funds into the local banking system and address systemic problems [6, 21].

Policy options were available to the authorities in a number of the third group countries, in addition to the economic reforms that they implemented early in the past years, as a number of the third group countries achieved macroeconomic stability, and the

chronic deficit in the public budget turned into a surplus in countries such as Morocco, the cumulative external reserves rose to levels not seen in these economies before [9].

When the crisis hit the economies of the countries in the third group that had implemented economic reforms, some of them rushed to implement economic stimulus programs based on the adoption of expansionary fiscal and monetary policies that allow supporting domestic economic activity and maintaining growth and economic recovery trends without resorting to, for example, implementing a program to correct balance-of-payments imbalances and the required monetary stimulus.

On the other hand, the global crisis slowed the pace of economic reform in several countries that had already adopted reforms in prior periods.as the circumstances generated by the crisis led to the postponement of the implementation of new reforms that were planned before the crisis, such as Egypt's postponement of introducing reforms to the value-added tax system, expanding its tax base, and rationalizing the applicable rates to increase the efficiency of allocating productive resources in the economy [2, 10].

It also concerns the postponement of the introduction of the tax on real estate and the reduction of subsidies for some primary commodities. It remains for these countries to choose the appropriate conditions for the resumption of the process of economic reforms that they have implemented during the past years.

Undoubtedly, other lessons can be drawn from the crisis, but it is important in this context to explore the efforts that can be taken to strengthen the national economy's resilience in dealing with future crises, and to make recommendations related to economic policy regarding the possibilities of working within the framework of each of the three groups and the expected role of resuming the process of economic reform in light of the recovery of Arab economies from the global markets and crisis [2, 4].

## **5.5 The possibilities of working within the framework of the countries of the first group**

The Gulf Cooperation Council countries sought to mitigate the effects of the global financial and economic crisis by stepping in quickly to pump monetary liquidity, simplify monetary policy management, and boost public spending to stimulate the national economy. The ability of the banking and financial sectors in the (GCC) countries to contain the systemic risks stemming from the crisis has improved because of the government's support [4].

Despite the lack of bank credit to the private sector, the non-oil economy continued to thrive. Given the projected oscillations in the world economy following the crisis, it is expected that the full recovery of the economies of the (GCC) countries from the effects of the global financial and economic crisis will take some time before they achieve sustainable growth rates.

The crisis exposed the dangers of rapid and sometimes excessive growth in bank lending in some (GCC) countries during the years of economic boom resulting from increased oil revenues, as well as the heavy reliance on foreign financing and the increasing exposure of many Gulf banks' assets to the real estate and securities sectors, with resorting to the use of hot and short-term funds deposited with them to finance projects and long-term liabilities [7, 8].

Due to its intertwining with the global banking and financial system, the regulatory role of the banking and financial system in various (GCC) nations was also found to be unable to keep up with the rapid advancements in the local banking and financial market.

The consequences of the global crisis, on the other hand, revealed the dangers of the oil sector's dominance in the national economy and reliance on oil revenues,

#### *Perspective Chapter: International Financial Markets and Financial Capital Flows... DOI: http://dx.doi.org/10.5772/intechopen.102572*

necessitating a step up in the (GCC) countries' reform efforts over the last two decades to diversify the economy's base, increase non-oil revenues, expand the contribution of the private sector to economic activity, and preserve savings and to adopt an expansionary fiscal policy counter to the economic cycle during periods of economic stagnation and mitigate the dangers of reliance on the oil sector with income from oil revenues [9].

To continue the direction of the Gulf Cooperation Council countries to reform the economic conditions resulting from the crisis and restore the economy's ability to achieve sustainable growth, the banking sector is called upon to restore its role in financing economic development after Gulf banks rebuild their capital bases and get rid of the losses incurred by some banks due to their excessive risks [2, 4].

Likewise, the (GCC) states are called upon to intensify their efforts in developing the regulatory and supervisory role on the local banking systems to keep pace with the rapid developments in light of the intertwining of local systems with the global banking system.

On the economic policy side, there is a need for more coordination between monetary and fiscal policies in several (GCC) countries, using macroeconomic management tools that help slow down the transition of the oil cycle to the economy, in light of the limited independence of monetary policy by virtue of the linkage and stability of a number of Gulf currencies in dollars. In addition, the establishment and development of debt bond markets may help diversify the investment portfolios of investors away from the scope of the traditional role for banks in a way that contributes to enhancing financial depth [4].

To diversify the economy and increase the contribution of the private sector to economic activity, (GCC) states are being urged to improve their economies' competitiveness by developing financial market regulatory bodies and removing rentier restrictions on practices that stifle competition, as well as attracting local and foreign direct investment that creates jobs and supports the diversification strategy.
