Impact of the Global Financial Crisis of 2007 on the Qatari Economy - Assignment Example

? Impact of the Global Financial Crisis of 2007/2008 on the Qatari Economy Impact of the Global Financial Crisis of 2007/2008 on the Qatari Economy Abstract The global financial crisis of 2007-08 had affected many countries of the world. Even the world’s leading countries, like USA, were struggling to cope with the sudden changes in the market trends. This report discusses the impact of the global financial crisis in Qatar. The case study is reflected in comparison with the situation in other countries in the same region. The financial crisis is evaluated in the light of statistics and results. Many financial indicators are discussed which highlight the effects of the chaos in international market. It will be evident from the results that Qatar was able to mitigate the effect of the global crisis to a great extent. Financial indicators don’t show much grief for the citizens. Contents Abstract 2 Introduction 4 Regional Effect of the Global Economic Crisis 5 Real GDP Growth 5 Growth and Employment 6 Commodity and Oil Prices (Inflation) 7 Returning Labor Migrants 9 Increasing Poverty Levels 10 Rising Pressure on Social Security 11 Decrease in International Assistance 12 Conclusion 13 Bibliography 14 Introduction The financial crisis that captured the many countries in 2007-08 is referred to as Global Financial Crisis. It is considered as the worst financial and economical crisis in the history after the huge recession in 1930s. It had severe consequences including bailout of governmental banks, decline in stock markets, reduction in housing market, large periods of unemployment etc. Most part of the world was captured by the major financial crisis. Even the United Arab States which are part of GCC, Gulf Cooperation Council, faced the consequences of the global economic hazards. However, Arab Countries are less prone to financial crisis as compared to lesser developed countries and they can cope with the economic turmoil. However, they have to face some part of the hazards that the whole world was suffering from (Behrendt). Qatar is the part of the GCC which enables it to utilize several benefits. Qatar is benefitted from high commodity prices and prudent management of the financial assets. Qatar was indirectly affected by the global financial crisis owing to the development of oil prices in the region. The downturn of the countries in the regions of North America, Asia and Europe eventually reflected the crisis towards the gulf countries. The growth potential of the gulf countries was severely impeded by the oil prices. Qatar was already facing some political, economic, and social challenges that increased its challenges to face the crisis. Had the crisis continued for a longer period, the employment opportunities and social security at Qatar would have been severely affected (Behrendt). This report discusses the impact of global financial crisis on various economical factors including employment opportunities and social security. Policy responses to combat the situation are discussed. The report focuses on selected aspects of the crisis in the light of statistics that reveal the impact of financial crisis during the period of 2007-08. The effects of the crisis are transmitted to the regional and country level (Behrendt). The statistics will be evaluated in the light of reasons and comparisons. The financial indicators will be pointed out in each situation to reflect on the economy of Qatar. The graphs will parallel the results from other Gulf countries to show the tough resistance of Qatar in terms of its economic stability and viability. Most of the indicators are directly or indirectly related to each other. So, if one factor is severely affected with crisis, the other areas of economy will face the dilemma also. Regional Effect of the Global Economic Crisis The effect of global economic crisis will be highlighted in terms of economic indicators that are direct measure of the country’s economic stability. Real GDP Growth The major financial crisis severely affected the economic conditions throughout the Middle East. The indicators of stock markets and foreign exchange showed a worsened trend. The composite index showed a tremendously fall of more than 50 percent in just one year. IMF revised the growth estimates which were expected to be reflected in Middle East countries. The growth rates of real GDP didn’t reflect the crisis as such in Qatar’s economy due to IMF projects lower rates. However, most of the Arab states fell victim to this change. In Qatar, the real GDP rates were expected to increase by some points during 2008 but falling down in 2009. Figure 1: Qatar Real GDP Growth Growth and Employment Figure 2: Qatar Unemployment Rate The figure shows the unemployment rate in Qatar during the period of financial crisis. As the financial chaos began, the conditions worsened appreciably. Almost 90 percent of the labor force got unemployed due to severe mayhem in the global economy. The effects were quite pronounced and evident as whole of the labor force was suffering from lack of jobs in government and private sector. They were struggling to earn money for their family. As the years went by, the situation improved considerably owing to the deep-insight implementations of the Qatar government. During 2008, the unemployment rate fell to 50% and during 2009, it was only 30%. Qatar government took major steps for betterment of the economy and employment conditions to reduce the frustrations among the people due to lack of jobs. The statistics don’t quite reflect the employment opportunities for women separately. However, women faced more troubles to find jobs than men. Although the participation of women in labor force is not pronounced, yet they were victim for lack of jobs in the market. Commodity and Oil Prices (Inflation) The statistics for crude oil in Qatar show a significant decrease in oil prices during the period of 2009. The trend started falling as soon as the financial crisis was set in. The oil prices kept falling till 2010. The prices dropped to staggering 63 dollars per barrel which is record in the recent times. The ultimate consequence of the decrease in il prices was to decrease the production to meet the requirements of the turmoil. Organization of Petroleum Exporting Countries decided to decrease the crude oil production by 4.2 million barrel. These attempts were made to achieve the fiscal balance in the oil prices and commodities. If the trend continued to decrease further, the GCC countries especially Qatar, would have to face severe consequences. The growth of oil and petroleum would be under much stressful conditions (Khamis). However, the impact of falling fuel prices may have balanced out the increase in food and commodity items. The household expenditures were reduced in terms of fuel as people had to survive with quite high priced food items. Wages and pension scales were not revised by government owing to the huge pressure on the budget. Reduction in oil prices also aided public budgets in some countries which provide fuel and food subsidies in exchange to the social protection policies. The consumer price inflation rates are variable in Arab Countries. A very careful look at the comparison of the consumer price inflation shows that Qatar is less prone to the financial crisis as it maintains the reduced rate of decrease of inflation with only a slight drop. Other countries like Jordan and Oman suffer from drastic decline in inflation rates. Many factors decide the consumer price inflation rates. Some of the factors are high prices of commodities, fuel shortages, pressure on demand of products, supply shortages, depreciation of US dollar. The high rates of commodity prices are a big stress on the country’s economy since the food products are the vital part of the consumption baskets. The high prices of food items may have benefited some of the investors dealing in commodities but the salaries and wages are not revised accordingly to match with the high rates of inflation. The effect of inflation is widespread and is reflected in overall country’s economy. It imparts social and economic turmoil in the region (Senhadji). Figure 3: Consumer Price Inflation rates Returning Labor Migrants Labor migration is the important factor in deciding the impact of the financial crises. The region in which there are labor sending and labor receiving countries are vastly affected with the labor migrations. As the labor force migrates to other countries, the economic slowdown in the country occurs which suffered from lack of labor. This factor is directly related to the unemployment. As the workers were expelled from their jobs following the financial crisis, they had to find other jobs. They had to migrate to other regions or countries which were less affected by the financial mayhem. Construction, financial services, and real estate suffered from sharp decline due to lack of labor force. The labor force can show positive change if labor force is also migrating into the region and this proportion is larger than the migrating labor force out of the region. For this situation to prevail, the government has to take steps towards attracting the labor force of other counties. Figure 4: Labor Force Migration The graph clearly shows that the Qatar suffered from high rates of labor force migration as compared to the other countries in the gulf region. It is just below the UAE in terms of labor force migrating outwards. The destination is unknown according to the statistics but labor force couldn’t migrate to other Gulf countries because they were facing similar kinds of employment recessions. Comparing the statistics of other countries, it is evident that most of the migrants are going to Saudi Arabia. These statistics clearly reveal that the Arab countries are not stringently affected by the economic chaos as compared to the South Asian workers. Increasing Poverty Levels The economic recession is directly related to the poverty in the region. This measure shows the effect of the increase in prices of the commodities and food products. People are unable to buy expensive things for supporting their families and live below poverty level. The statistics show that GCC countries are able to swallow major impact of the poverty in case of severe economic crisis and poverty levels are not fluctuated much. Human development index (HDI) is the direct measure of the poverty level in the country. The higher the value of the HDI, the lesser will be the poverty. It is affected by other economic indicators like increase in energy costs, increase in unemployment, decrease in social security etc. In case of Gulf countries, they suffered from lesser increase in poverty levels as compared to other regions of the world. However, the real wages and income must be increased to sustain the effect of the economic crisis. Figure 5: Human Development Index The graph shows that the HDI for Qatar is among the leading countries of GCC. It lies in close comparison with Kuwait, UAE, Bahrain, and Oman. The effect of poverty seems to be scarce. This trend shows the resilience of Qatar’s economy to the huge financial mayhem. Rising Pressure on Social Security Social security means protecting the rights of the residents in terms of their wages, pensions, basic rights of living etc. Increased levels of financial crisis are likely to put a heavy stress on the social security measures. Both formal and informal social security measures will be affected. The pension funds are returned from the business spent on equity. The World Bank calculated the decrease in pension levels during 2007 and 2008. It was estimated to decrease by at least 40 percent in just one year. Pensioners had to face a severe dilemma. Some saviors were always there for gulf countries including Qatar for pensioners. Firstly, the investment in the global markets from the pension money wasn’t that great. As a result, the market downturn didn’t affect the return on pension severely. Secondly, the exposure to global financial markets is not in wide horizon. It is only limited to a few schemes. The rest of the pension money is utilized in regional projects. Social security demand increased considerably during the financial crisis due to increase in unemployment. People were unsure of their living conditions and Government had poorly targeted social security measures. The benefits were there for selected groups only based on favors. In some regions, informal social security measures were taken to provide the basic rights to the people. However, during the time of severe economic distress, the private and unofficial means don’t have large resources to help a huge community of people. Decrease in social security also gives rise to psychological problems in people leading to mental distress. They would want to migrate to other countries. Decrease in International Assistance In the time of crisis, every country has the priority of saving its own rights first. Universal rule dictates that you should take your ship out of the storm first before saving others. During the global financial crisis, many countries which were dependent on international aid, suffered a great deal because their resources were depleted. Qatar had only a scarce reliance on international resources. It was nearly self- sufficient with level of imports kept to minimum. Hence the decrease in international assistance didn’t affect its financial conditions a great deal. Conclusion Global financial crisis started in 2007 and had impact on GCC countries in various economic areas like Real GDP, unemployment, fuel prices, poverty level, and migration of labor force. The report is especially focused on the economic indicators of the Qatar while looking at the conditions of the other GCC countries in comparison. Most of the indicators show that the Qatar was able to survive the crisis very well. The economic indicators show a great resilience against downturn in the global markets. Significant effect can only be observed in labor force migration to other parts of the world. It has been observed that the economic indicators are closely related to each other and effect on one factor is reflected in other as well. According to the experts, the financial crisis ended in 2010 but many researchers report that the crisis is still continuing. The clash in statements is due to the difference in considerations of economic indicators. Some of the indicators are still going down but at very slow rate which has made the researchers on other lines. Bibliography Behrendt, Christina and Haq, Tariq and Kamel, Noura. "The impact of the financial and economic crisis on Arab States: Considerations on employment and social protection policy responses." Available at SSRN 1478323 (2009). http://www.ilo.org/public/english/support/lib/financialcrisis/download/impact_english.pdf Khamis, May. "The Impact of the Global Financial Crisis on ." Roundtable on Effective and Efficient Financial Regulation in the MENA Region (2010). http://www.oecd.org/mena/investment/privatesectorinitiatives/46758795.pdf Senhadji, May Khamis and Abdelhak. "Impact of the Global Financial Crisis on the Gulf Cooperation Council Countries and Challenges Ahead: An Update." 2010. HYPERLINK "http://www.imf.org/external/pubs/ft/dp/2010/dp1002.pdf" http://www.imf.org/external/pubs/ft/dp/2010/dp1002.pdf Read More