IslamicFinance.de

Since the global financial crisis of 2008, gross capital inflows to the Middle East and North Africa (MENA) have remained high compared to other emerging markets, but their composition has changed significantly. There has been a surge in portfolio flows (equity and bond instruments) and a decline in foreign direct investment. The inflows to the region surged to more than $155 billion over 2016–2018. About two-thirds of the increase can be attributed to a more favorable global risk sentiment. However, with global economic risks now on the rise, MENA countries would be particularly vulnerable if global risk sentiment shifts. Improved policy frameworks are crucial not only in attracting but also in preserving capital flows, while helping mitigate the risk of outflows. Countries will also need to undertake certain key structural reforms, including measures to strengthen financial supervision and regulation.

Until now a full picture of global debt was missing. However, the October 2016 Fiscal Monitor has put a number on the size of debt covering virtually the whole world. Global debt is at record highs, amounting to $152 trillion or 225% of global GDP. Close to $100 trillion or about two thirds are liabilities of nonfinancial firms and households, private debt. The remainder is public debt. The concern with excessive private debt goes beyond the risk that it may mutate into public debt. Excessive private debt is associated with financial crises. Moreover, financial recessions are longer and deeper than normal recessions. It is excessive private debt that countries should avoid. Therefore, regulatory and supervisory policies should ensure the monitoring and sustainability of private debt.

Excerpt from the IMF report
"Which group of banks is better-positioned to withstand adverse shocks?
With larger capital and liquidity buffers, Islamic banks are better-positioned to withstand adverse market or
credit shocks. On average, Islamic banks’ capital adequacy ratio (CAR) in the GCC is higher than that for
conventional banks (except in the United Arab Emirates). The risk-sharing aspect of Shariah-compliant
contracts adds to this buffer as banks are able to pass on losses to investors."

page 10, 11

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