The COVID-19 crisis will be a significant and devastating historical global event. As the pandemic subsides, it is expected that the current global system, including the capitalist economic system, will collapse, leading to the emergence of a new global system that may include adjustments favoring Islamic economics.

The belief that hopes will be realized on their own is incorrect; there must be reasons and preparation for correcting the current reality, which appears challenging in the short and medium term. It is not possible to return to the pre-crisis normal without making some adjustments to the way of life due to the coronavirus, which has affected most countries in the past few weeks up to the time of writing this report in mid-April 2020. This means that the coronavirus has been around for more than three months, and the victors in the current battle, akin to a global economic war against the deadly coronavirus, will be those who can write history.

All countries are now experiencing societal strain caused by the virus's new and intense spread. It is important to note that the world will change after the COVID-19 pandemic, leading to significant transformations, according to the following scenarios:

Scenario 1: The Best-Case Scenario

An agreement between the major powers leads to China emerging economically and technologically, and a swift and friendly submission to China. Based on the agreement between China, the U.S., and the European Union, an announcement of the discovery of a treatment and vaccine will be made, ending lockdowns and quarantines within a short period, by the end of May 2020 at the latest, and possibly by summer. This would mean only a global economic recession.

Consequently, life will gradually return to normal, starting with the reopening of air travel, the resumption of jobs, and various sectors of activities under hygiene regulations, until life gradually returns to normal before the end of 2020. However, the effects of the economic and financial crisis will continue into 2021, until recovery begins. Prosperity will start to emerge in most developing countries, and Islamic and Arab countries will have significant opportunities due to their resources and investment potential. The economy will be driven by knowledge, innovation, and technology, leading to the following developments:

1. The post-COVID-19 world will not see the continued dominance of the United States. The U.S. will no longer be regarded as a global leader due to its administration's focus on narrow self-interests and lack of competence.

2. China will effectively lead the next phase in partnership with the U.S., the European Union, and others. China will take on this role and steer the direction, shifting power and influence from the U.S. and the EU to China. Despite initial difficulties in addressing the virus, China has managed the pandemic effectively, while Europe and the U.S. have faced confusion and mishandling, tarnishing their positions.

3. The international system will face significant pressures, leading to a global economic downturn, a decrease in economic activity, and increased tensions between countries. This could result in instability and widespread conflict within some countries, including those in the EU.

4. Some countries will require continued recapitalization with billions of dollars to support their economies, which are burdened by debt and difficulties. Their public financial resources will need support.

5. The efficiency of some governments will be highlighted, while others will be exposed for their failures due to the disruptions caused by the pandemic in many cities, market closures, travel restrictions, and damage to the global economy. The U.S. could have mitigated the global impact of the pandemic significantly by having international organizations provide more timely information, allowing governments to prepare and direct resources where they were most needed. The U.S. could have taken on this role and coordinated these efforts to show that its focus was not solely on domestic issues.

Scenario 2: The Worst-Case Scenario

If no agreement is reached among the hidden powers that are above the U.S. and China, which lead the major powers along with the U.S., a Third World War might occur. This conflict would force the warring parties, primarily the U.S. and China, to sit at the negotiating table and divide global influence and power differently. Prolonged lockdowns and quarantines would result in a global economic depression, driven by the continued struggle for global influence between the U.S. and its allies versus China and others. This means no consensus would be reached on the division of global interests, and the global system would remain under the control of the five permanent members of the UN Security Council with American dominance. Consequently, the following would happen:

1. China's challenge to American hegemony would significantly impact global economic trends, accelerating a shift that had already begun. This shift would transition from a U.S.-centric globalization to a new global system where China plays a central role.

2. There would be a move away from reliance on the dollar, leading to the emergence of a new global currency.

3. Most global agreements would be revised, and changes would be made across various domains.

4. The internet and other systems would be restructured to become open spaces for all, no longer solely controlled by the U.S. as they are currently.

5. Governments around the world would adopt emergency measures to manage the crisis, but many would be reluctant to relinquish the new powers acquired once the crisis ends. This reluctance would not contribute to changing the prevailing global policies marked by conflict. Previous rivalries among major powers have not been resolved, and the crisis would not mark the beginning of a new era of global cooperation.

   The battle against the current pandemic would reveal a world that is less open, less prosperous, and less free due to several factors, including inadequate planning and incompetent leadership, placing humanity on a troubling path.

The solutions I recommend are as follows:

• Private sector companies should strive to ensure a better provision of their supplies.

• Health systems need to reorganize themselves in a more effective manner.

• Countries should consider securing their independence regarding strategic products.

• Adjustments to the way of life should be made.

• Agree on a basket of currencies that includes the dollar and relies on digital currencies.

• Prepare to implement Islamic economics as a global alternative to the current capitalist system.

• Prepare for changes in the economic and social models.

• Rebuild trust in globalization and international trade to achieve economic recovery that enhances competitiveness anywhere in the world.

• Countries should review all laws to align with the upcoming phase.

• Countries need to establish robust political, economic, and health systems to outperform those that have experienced different and devastating outcomes in their fight against COVID-19.

• Everyone must address their wounds and absorb the shock to maintain stability.

بBy Dr. Shahab Al-Azizi

Since the beginning of 2020, the global economy has been experiencing an unprecedented crisis, comparable only to what was witnessed during the Great Depression of the 1920s and 1930s, or even earlier. The COVID-19 pandemic has led to a halt in global economic activity despite the economic stimulus measures taken by governments to mitigate the impact of the shock. However, it is likely that the recession caused by the pandemic will remain a significant obstacle for the international economy for years to come. The future trajectory of the global economy in its recovery efforts is uncertain, primarily depending on how long COVID-19 remains a global threat.

The Middle East and North Africa (MENA) region is heavily threatened economically due to its substantial reliance on revenues from the export of primary commodities and energy sources. With the global demand for these products declining due to the slowdown in global economic activity, the economies of the region are at significant risk, and their future remains highly uncertain.

The current pandemic crisis, due to its depth and severity, has caused a contraction in developing and emerging economies, which had recorded some of the highest growth rates globally before 2020. These economies had managed to maintain stability despite trade wars among major economies, high levels of debt, and falling commodity prices.

According to World Bank estimates, the global economy is expected to contract by -5.2% in 2020, representing the largest contraction since World War II. Advanced economies are projected to experience the deepest contraction, at -7%, while developing and emerging economies are expected to contract by -2.5%. Geographically, all regions of the world are projected to experience contraction except for East Asia and the Pacific. Latin America and the Caribbean are likely to face the deepest recession globally, with their GDP expected to shrink by approximately 7.2%.

Based on the above, it is also expected that the economy of the Middle East and North Africa will contract by -4.2% in 2020. This is due to two main factors: the decline in global oil demand, particularly during the second quarter of the year, which led to a reduction in oil prices by about 50%, reaching their lowest level in over 20 years. Given the importance of oil-exporting economies, which constitute a significant part of the region's economies, the decline in oil revenues presents a major challenge, causing a decrease in the overall output of the oil sector.

Another significant factor affecting economic performance in the region is the deep contraction in the non-oil sector. For example, although the drop in oil prices is expected to reduce growth rates in the oil sector of Gulf Cooperation Council (GCC) countries by 2.7%, according to World Bank estimates, the impact of the crisis will be even more painful for the non-oil sector, which is anticipated to see a growth decline of 4.3% in GCC countries. Similar expectations apply, to varying degrees, to non-GCC countries, reflecting the extensive and profound negative effects of the current crisis on various economic activities in the region.

The region’s financial situation faces an additional challenge that burdens national budgets in 2020, due to the maturity of sovereign external debts amounting to $35 billion. While some of these countries may benefit from initiatives adopted by international institutions, the G20, and creditor countries to defer debt repayments for the poorest nations, there are limitations to these initiatives. The first limitation is that the region’s countries must obtain the approval of their direct creditors to benefit from such initiatives, which is not guaranteed, especially since debt deferral initiatives are not binding on creditors.

The second limitation concerns the region's capacity to handle additional debt. Some countries in the region have entered into negotiations to secure new loans to address the economic fallout from the COVID-19 crisis, with some already obtaining loans and expectations that more will follow. Additionally, many countries have expanded their borrowing through new bond issuances. This approach exacerbates the region's debt crisis by placing new burdens on public budgets, increasing the strain on economies with new debt service obligations. This, in turn, delays recovery by siphoning more liquidity from the economic cycle and puts pressure on local currencies, particularly in countries with flexible exchange rate policies.

Future trajectories for the economy of the Middle East and North Africa (MENA) region can be assessed by analyzing various indicators. While internal resilience of each economy is a critical factor in its recovery from any crisis, the current situation is relatively different due to its nature as a global economic crisis with many complex dimensions. The economic repercussions, particularly in terms of trade restrictions and negative impacts on capital flows, represent major threats to the growth prospects of developing and emerging economies, including those in the MENA region.

If the pandemic persists for an extended period within the region or among its key trading partners, it will lead to prolonged production disruptions, an expansion of negative impacts on supply chains, and a further collapse in levels of confidence and demand. Given that most Middle Eastern countries are producers and exporters of primary commodities and energy sources, these developments will keep global demand for such products at its minimum.

Another significant impact is the effect on investor sentiment and financial risk tolerance, which could result in a sharp decline in both global and local capital flows, particularly in portfolio investment flows, which are highly sensitive to investor mood. The World Bank forecasts that capital inflows to the region are expected to decrease by $100 billion, or 3% of GDP, which exceeds the total amount of portfolio investment inflows received by the region in 2019.

Additionally, there is a likelihood of capital flight from the region’s economies as part of a global trend of capital outflow from developing and emerging economies. This could further exacerbate the economic crisis in the region by leading to reduced investment and production, increased unemployment, and ultimately driving economies towards depression. The world has witnessed similar scenarios in the past, such as during the Great Depression when American capital fled to other countries, eventually leading to economic conditions in Germany that were as severe as those in the United States.

Capital flight will put pressure on the balance of payments in the region's countries, particularly those that are not oil exporters. This will strain their budgets, which will have to bear the burden of servicing foreign debt in foreign currencies. Such a situation could lead to disruptive adjustments in exchange rates, especially in countries with narrow financial buffers and weak economic and financial fundamentals.

Another risk facing the Arab region is the anxiety and reluctance of investors to take on risks, which will impede financial flows to local industries and real economic activities. The majority of granted loans are likely to go to governments and public companies, with investors preferring to purchase sovereign bonds due to their government-backed guarantees. In contrast, corporate bonds, private company bonds, and equities in financial markets will see lower demand.

It is also expected that the prolonged duration of the crisis will lead to higher unemployment rates and a reduction in consumer spending and effective demand. The repercussions could extend to the banking sector, which will face pressure due to loans extended to households and sectors affected by the crisis. The likelihood of defaults on these loans will increase, putting banks and financial institutions—especially those unable to withstand severe financial strain—at risk of bankruptcy.

Finally, it should be noted that these projections are not limited to Arab countries alone but apply to all regions concentrated with primary commodity-exporting nations and those with significant debts. Future forecasts for the performance of these economies will be subject to ongoing reviews, with most revisions likely leading to lower growth expectations and extended recovery periods.

All of this remains contingent upon the effectiveness of economic policies, which play a role similar to that of health policies at the onset of the COVID-19 crisis. During the early stages of the pandemic, health policies aimed to flatten the curve of new infections as much as possible and bolster the capacity of healthcare systems to withstand pressures until the virus’s spread began to recede. Similarly, economic policies must work to flatten the curve of financial and monetary crises, enhancing the local economy’s ability to endure pressures until the global economic crisis begins to wane.

Since early 2020, the global economy has been experiencing an unprecedented crisis, akin only to the Great Depression of the 1920s and 1930s or even earlier. The COVID-19 pandemic has led to a halt in global economic activity despite the economic stimulus measures taken by governments to mitigate the shock's impact. Nonetheless, the recession induced by the pandemic is likely to remain a significant obstacle for the international economy in the coming years. The trajectory of global economic recovery remains uncertain, primarily dependent on how long COVID-19 continues to pose a global threat.

The Middle East and North Africa (MENA) region faces substantial economic threats due to its heavy reliance on revenues from the export of primary commodities and energy sources. With the decline in global demand for these products due to the global economic slowdown, the economies of the region remain at significant risk, and their future remains highly uncertain.

The current pandemic crisis, due to its depth and severity, has caused a contraction in developing and emerging economies, which had recorded some of the highest growth rates globally before 2020. These economies had managed to maintain stability despite trade wars among major economies, high levels of debt, and falling commodity prices.

According to World Bank estimates, the global economy is expected to contract by -5.2% in 2020, representing the largest contraction since World War II. Advanced economies are projected to experience the deepest contraction, at -7%, while developing and emerging economies are expected to contract by -2.5%. Geographically, all regions of the world are projected to experience contraction except for East Asia and the Pacific. Latin America and the Caribbean are likely to face the deepest recession globally, with their GDP expected to shrink by approximately 7.2%.

Based on the above, it is also expected that the economy of the Middle East and North Africa (MENA) region will contract by -4.2% in 2020. This is due to two main factors: the decline in global demand for oil, particularly during the second quarter of the year, which led to a drop in oil prices by about 50%, reaching their lowest level in over 20 years. Given the importance of oil-exporting economies, which form the dominant block in the region’s economies, the decline in oil revenues poses a significant challenge and is a major reason for the decrease in the overall output of the oil sector.

The other major factor affecting the region’s economic performance is the deep contraction in the non-oil sector. For instance, although the drop in oil prices is expected to reduce the growth rates of the oil sector in the Gulf Cooperation Council (GCC) countries by 2.7%, according to World Bank estimates, the impact of the crisis will be more severe on the non-oil sector, with growth in the GCC countries projected to decline by 4.3%. These expectations broadly apply to non-GCC countries as well, indicating the substantial and deep negative effects of the current crisis on various aspects of economic activity in the region.

The region’s financial situation faces an additional challenge in 2020 due to the maturity of external sovereign debts amounting to $35 billion. While some countries may benefit from initiatives adopted by international institutions, the G20, and creditor countries regarding the postponement of debt repayments for the poorest countries, there are constraints on this. The first constraint is that the region’s countries’ eligibility for the initiative remains conditional on the agreement of their direct creditors, which cannot be guaranteed, especially since the debt postponement initiative is not binding for creditors.

The second constraint concerns the region’s economies’ capacity to bear additional debt, as some countries have entered negotiations for new loans to address the economic fallout from the COVID-19 crisis, with some already securing loans and more expected to obtain further loans. Additionally, many have expanded borrowing through new bond issuances. This approach exacerbates the debt crisis in the region, adding new burdens to public budgets and increasing economic strain from servicing new debts. This delay in recovery is due to the withdrawal of additional liquidity from the economic cycle and the pressure it places on local currencies, particularly in countries with flexible exchange rate policies.

The future trajectories of the economy in the Middle East and North Africa (MENA) region can be determined by analyzing various indicators. While the internal resilience of each economy is a crucial factor in its recovery from any crisis, the current situation is somewhat different due to its nature as a global economic crisis with many complex dimensions. The economic repercussions, especially in terms of restricting trade and its negative impact on capital flows, pose a significant threat to the growth potential of emerging and developing economies, including those in the MENA region.

The prolonged continuation of the pandemic in the region or among its major trading partners could lead to extended disruptions in production, an expanded range of negative effects on supply chains, and a greater collapse in levels of confidence and demand. Given that most Middle Eastern countries are producers and exporters of primary commodities and energy resources, these developments keep global demand for these products at minimal levels.

Another significant issue is the impact on investor sentiment and risk tolerance, which could result in a sharp decline in both global and local capital flows, particularly in portfolio investments that are highly sensitive to investor mood. The World Bank projects that the capital flows expected to the region during the crisis will decrease by $100 billion, or 3% of GDP, which exceeds the total amount of portfolio investment flows into the region in 2019.

There is also a possibility of witnessing capital flight from the region's economies as part of a global trend of capital outflow from emerging and developing markets. This could exacerbate the economic crisis in the region by reducing investment and production, increasing unemployment, and potentially pushing economies into recession. Historical precedents, such as during the Great Depression, illustrate how capital flight from the U.S. to outside Germany contributed to a severe economic downturn in Germany.

Capital flight will put pressure on the region’s balance of payments, especially in non-oil-exporting countries, and burden budgets with the need to service foreign debt in foreign currencies. This situation could lead to disruptive adjustments in exchange rates, particularly in countries with narrow financial buffers and weak economic and financial foundations.

Another risk facing the Arab region is investor anxiety and aversion to risk, which will deter financial inflows into local industries and real economic activities. Instead, a significant portion of loans will likely be directed towards governments and public companies. Investors will prefer buying sovereign bonds for their government-backed guarantees, while industrial company bonds, private companies, and equities in stock markets will see reduced demand.

It is also expected that the prolonged duration of the crisis will lead to an increase in unemployment rates, a contraction in consumer spending, and reduced effective demand. These consequences may extend to the banking sector, which will face pressure from loans granted to households and sectors affected by the crisis, leading to a higher likelihood of defaults. This situation could put banks and financial institutions, especially those unable to withstand severe financial pressure, at risk of bankruptcy.

Finally, it is important to note that these estimates are not only applicable to Arab countries but also to all regions with significant primary commodity exporters and high levels of debt. Future projections for the performance of these economies will be subject to continuous revisions, with most revisions likely indicating lower expected growth rates and extended recovery periods.

All of this is contingent upon factors related to the efficiency of economic policies, which may play a role similar to that of health policies during the early stages of the COVID-19 crisis. Just as health policies aimed to flatten the curve of new infections and strengthen the capacity of health systems to avoid failure under pressure, economic policies must work to flatten the curve of internal financial and monetary crises and enhance the local economy's resilience until the global economic crisis recedes.