**5.7 The possibilities of working within the framework of the third group countries**

The minimal exposure of the local banking and financial sectors to global financial markets has helped to prevent the global financial crisis from spreading directly to the economies of the third group. The stalling of global demand, on the other hand, caused a slowdown in the group's exports, a drop in private sector investments, and a drop in the demand for bank credit. Despite this, the banking sector's performance in the majority of the group's countries was unaffected, thanks in large part to the efforts undertaken by these governments.

Countries to reform and liberalize the banking sector, within the framework of comprehensive economic reform programs that they pursued at an early date. These countries have been able to restructure the local banking system, which has led to an increase in capital adequacy rates and a reduction in the ratio of non-performing loans to total loans, while improving the quality of credit portfolios with banks. These reforms also contributed to strengthening the banking sector's resilience to external shocks. The economies of these countries have been achieved [6, 21].

Average growth rates are estimated at 5.4 percent in (2009), compared to average growth rates of about 6 percent during the period before the global financial and economic crisis, rates that exceed those recorded by many emerging economies. In the field of monetary policy, the monetary authorities in the third group countries have made unremitting efforts to reduce the effects of the global crisis on economic activity by using the policy tools available to them, and the return of this policy has been good on the banking and financial sector with the decline of inflationary pressures in the economy. Countries such as Tunisia, Egypt and Morocco are working to create the appropriate conditions for implementing the Policy Targeting Inflation to achieve price stability [4, 21].

However, the global financial crisis showed the need for the monetary authorities in a number of the group's countries to continue to deepen the structural reforms of the banking sector, such as continuing to reduce the proportion of nonperforming loans and working to implement (Basel II) standards for the adequacy of risk-weighted capital, and to increase banking transparency in front of investors and depositors regarding the risks that may be exposed. It has commercial banks and the strengthening of the supervisory role on the local banking systems to avoid systemic risks [18, 31].

It is also important to continue to pursue and deepen economic reform in the group's countries to support the resilience of the national economy is facing the new challenges brought about by the global crisis.

In light of the decline in exports resulting from the contraction of external demand and the decline in remittances of workers abroad, the current account balance of the third group countries has deteriorated, and these countries hastened to develop and implement a package of measures to increase public spending and stimulate domestic economic activity [9, 10].

Thus, the budget deficit has worsened and the financial performance indicators that these countries have committed themselves to achieve within the framework of their implementation of economic reform programs have deteriorated.

Despite the high ratio of the budget deficit to the gross domestic product of a number of the group's countries, the outstanding debt balance as a percentage of the (GDP) was not significantly affected, in addition to the fact that some countries of the group [2, 4].

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

Other countries in this category were able to finance their budget deficits with a minor rise in the return on new treasury notes by relying on the liquidity available with local commercial banks using the external reserves they had built during the pre-crisis economic boom. Although, international financial institutions expect global demand and growth to recover in the future, continued volatility in global financial markets and uncertainty in developed country economies may foreshadow further negative repercussions in the future [12, 36].

The private sector's reluctance to risk investing may continue and the growth of bank credit to the private sector will remain weak.

Thus, the government in the countries of the group may continue to pursue an expansionary fiscal policy and countercyclical economic stagnation and to continue the stimulus measures for economic activity, such as providing tax incentives for some production and export activities [2].

However, the adoption of expansionary financial measures may have an impact on the medium-term sustainability of the financial position, necessitating efforts to return to the pre-crisis financial metrics that ensured macroeconomic stability.

As a result, it is necessary to resume structural reforms in the areas of public spending rationalization, financial transparency, and revenue reform, to increase tax revenues and their contribution to total revenues on the one hand, while lowering administrative costs and removing distortions in economic incentives on the other.

## **5.8 The global financial markets and the interconnection with global financial crisis and Arab economies**

The global crisis showed the existence of a link between the Arab economies with each other, as a number of the third group countries Palestine, Jordan, Lebanon and Syria are closely linked to the economies of the Gulf Cooperation Council countries, through exports, workers' remittances, tourism and foreign direct investment and capital flows [2, 26].

Preliminary data on intra-regional trade for these countries indicate that its value did not decrease during (2009), but the value of remittances of Egyptian workers in the (GCC) countries, for example, decreased slightly 6.1 percent in the same year. As for Gulf tourism to Lebanon, Syria and Egypt only, it continued to grow during (2008 and 2009). As for the Arab Maghreb countries, tourism to Tunisia from the Maghreb countries played an important role in keeping Tunisia's tourism revenues at their level before the crisis, as the arrival of tourists from Algeria and Libya contributed to Compensating for the decline in the volume of European tourism and thus the revenue generated by it [9, 10, 12].

Finally, it can be summarized that the repercussions of the global crisis on the Arab region indicate the importance of the role that Arab economic integration can play to mitigate the negative effects of global economic crises on Arab economies.
