West Asian governments must undertake and correct reforms or risk a downward trend. The growing deficits and debts already show the effects of the crisis. The place for carelessness is not there.
The influence of the COVID-19 issue on the economy of West Asian countries should be of primary importance. If we fail to overcome the downside effects, countries could see declining growth patterns and total productivity leading to a downward trend, undoing all previous progress.
The COVID-19 problem could hardly get any worse when nations are still grappling with the ill effects of global trade turmoil and low oil prices. The crisis is truly global and affects many areas of the world, including the region’s economic partners, limiting the scope of support that countries receive.
The effects of the crisis are substantially different from those of the two previous crises: the Asian financial crisis of 1997/98 and the global financial crisis of 2008-09. The epidemic has disrupted commodity, factor and human capital markets and could inflict long-term damage.
The crisis is also unprecedented in scope and size, predicted to be almost 5 times larger than financial crises in the world. Global GDP could decline by 6-10% and the decline could be worse if more pandemic waves experience poor government responses.
Both international and domestic tourism, which are the main sources of foreign exchange, have been severely eroded by the crisis.
The redistribution of migrant labor has also substantially influenced migration and return flows. Migration expenses will also grow in view of the increased needs for health and other measures and the great international challenges facing airlines. Additionally, numerous prominent nations in West Asia are fighting over exchange rates. Below is a list of countries whose economic crisis may have a drastic effect on the global economy.
United Arab Emirates towards the exchange rate issue
The exchange rate system of the United Arab Emirates dirham, currently fixed and adjusted to the US dollar, has been questioned.
It is easy to identify two points of view. First, the view of the official monetary authority of the United Arab Emirates (represented by the governor of the central bank) that the dirham should remain pegged to the dollar. Second, scholars favor a flexible exchange rate system for decomposition and adoption. How can we choose between fixity and flexibility, given this difference of opinion? According to UAE forex brokers, there are two basic types of exchange rate regimes: fixed: characterized by fixed currencies or baskets of currencies, when necessary, the peg can be changed; flexible: in several different modalities, such as free float when the exchange or managed float is established in a market that is influenced by the monetary authorities.
Extensive research on the choice between such systems has established: (a) Across countries, inflation in countries with adjusted exchange rates was lower and less volatile, (b) the link between the foreign exchange system and growth it was not clear; (c) the alternative exchange rate schemes alone were not necessarily leading to better or worse inflation rates; (d) economic growth could be high and inflation could be satisfactory. During the last decade, there has been an increase in the number of countries that have flexible exchange rates, and this trend is expected to continue with the increasing globalization of financial markets, and the optimal system of macroeconomic stability is neither a type of rigidly fixed exchange rate nor the full regime of flexible exchange rates. The countries with a flexible exchange rate registered higher inflation rates than those of the countries with a fixed exchange rate.
The modest inflationary opening, internal shocks and the degree in dollars are factors that favor stable exchange rates. Inflation, large external imbalances, low international reserves, fiscal inflexibility, financial runs, poor labor market flexibility, the internationalization of the single currency, the level of financial growth, foreign nominal shocks, and external and real internal are the favorable factors that favor the flexibility of the exchange.
The selection of the exchange rate regime on the basis of these variables does not depend on a single element.
Lebanon crisis deepens
Lebanon’s currency tumbled a milestone on Sunday to hit a new low against the dollar as the country’s political stalemate and financial collapse persist.
Market traders said that the Lebanese currency traded against the dollar at around 15,150 and lost more than 90% of its value during the time of the financial and economic crisis in Lebanon at the end of 2019.
Lebanon is in a serious crisis, a threat to its stability. Lebanon is under threat. The World Bank called it one of the deepest depressions in contemporary history.
The last time the pound hit 15,000 protesters in March, they were blocking roads burning tires and spent more than a week on the streets of Libya.
Foreign exchange reserves are running low and shortages have been growing in recent weeks, used to finance the subsidy program for essential products, including fuel, medicine and wheat.
Some hospitals exclude optional treatments and carry out emergency operations only to ration medical supplies. Most pharmacies have been on strike for two days, medicines have run out and hour-long waits for fuel cars have made drivers feel uneasy.
The economic collapse occurs in a context of fragile politicians who are fighting for the formation of cabinets.
Since his appointment in October, Prime Minister Designate Salad Al-Hariri has been in charge along with President Michel Aon of appointing the ministries. Following the resignation following the August 4 coup, the old government continued to play a custodian role.
Beginning in July, customers blocked from their dollar accounts were guaranteed access at a rate similar to market value, with each customer receiving $400 in cash and the same amount in Lebanese pounds.
Turkey and the fall of the lira
Turkey’s currency plunged 15% after President Recep Tayyip Erdogan ousted the country’s central bank governor over the weekend.
Naci Agbal was considered a major influence in the withdrawal of the lira from the lower parts of history.
The departure of the third central bank governor in less than two years succeeded Mr. Erdogan in an unexpected move.
To combat an inflation rate above 15 percent, Mr. Agbal, appointed in November, raised interest rates.
The move surprised local and global investors who appreciated the recent monetary policies of Turkey’s central bank.
The nomination of former banking and party lawmaker Sahap Kavcioglu has raised concerns that rate hikes in recent times have been reversed.
The effect of the dismissal hit the Istanbul stock market and raised concerns about the effects of Turkey’s borrowing rates.
Trading was halted for a while as circuit breakers kicked in due to a significant decline in stock prices.
After a sharp drop, the lira rallied about 8% lower than the US dollar after Foreign Minister Lutfi Elvan declared that Turkey will respect free market principles. At one point, the lira was the most efficient development currency in 2021, with more than a fifth recovering from bottom against the US dollar. It is therefore worrying that the election of Mr. Erdogan to take over Mr. Kavcioglu could undo the progress that has been made during Mr. Agbal’s brief tenure.
Mr. Kavcioglu is a renowned professor of banking and former legislator of the ruling Court of Justice. He shares Mr. Erdogan’s unorthodox view that high interest rates can spur inflation.
Turkey’s interest rate was 19 percent and international investors were tempted to park their money in the currency.