Home / news / Lessons in crisis management and the economic cycle from the story of Joseph, peace be upon him

Lessons in crisis management and the economic cycle from the story of Joseph, peace be upon him

Yusef, peace be upon him, said, “Make me on the coffers of the earth. I am Hafeez, knowing.” What is meant here (and God is the most knowledgeable) is the science of predicting the future, especially economic prediction.

Joseph, peace be upon him, has knowledge of the future from his interpretation of the king’s vision. Therefore, he was “more knowled” than others of the extent of the need to follow austerity policies in the boom cycle, and this was the reason for his request for the position, and I searched in books of interpretation, but I did not find an explicit explanation in this sense. But perhaps the closest to him is what Ibn Katheer called, in general, “knowledgeable and insightful of what he is undertaking,” and Shaybah bin Ouma’s saying, “Knowing about the age of arrogance,” “insight” can also be expressed as “vision”.

And Yusef, peace be upon him, predicted two economic cycles, a boom followed by a recession cycle, and appropriate spending and savings plans were drawn up for each cycle, otherwise people would perish in the recession cycle and a great disaster befell the country. Because it would have expanded spending and overconsumption with rising surpluses in the boom.

It is regrettable that this is the recurring pattern in the Gulf states with each cycle of oil boom and collapse. There is extravagance and waste with oil surpluses, austerity, deficits and taxes with collapses, why?

The secret is in the king and not in Joseph. The king had the political will to reform, so he sought Joseph, the specialist, to seek the help of his knowledge and competence, and enabled him to solve the crisis. The first king understood the public interest.

The lengths of economic cycles are mostly the same since the days of Yusef, peace be upon him, until now. Studies conducted on the American economy have proven that the average length of economic cycles ranges between 5 and 10 years.

What is meant by Hafeez is not only honesty and integrity from corruption (as some imagine), this is taken for granted. Otherwise, he would say that I am “honest” who is aware, nor the lack of extravagance, waste, confusion and indiscrimination, which costs the public treasury more than it should be. But “efficiency” in exploiting resources, that is, managing them at the lowest possible cost, and this includes all the previous meanings.

What is required is efficiency in managing depleted and depleting resources and not being extravagant and wasteful even as the sky gives it for free, because you do not know what the future holds for you and what will happen after the surpluses, so it is necessary to hedge against the worst possibilities.

Youssef is the first economist we know to use anti-cyclical policies, that is, austerity in the boom cycle, which are not understood. But Yusef had the ability to persuade and implement these policies, knowing their implications, and these policies are now being called by the Bank for International Settlements and prominent economists after the global financial crisis in 2008 to avoid the accumulation of imbalances in the macro economy during the booms that lead to crises later.

Every dirham you spend today has a price tomorrow, as wasteful spending and wasteful spending either lead to the depletion of resources when they are needed in the future, or raise inflation rates, and both are bad, and inefficiency in resource management does not give the best results, and its end is failure, as for corruption destroys the country and the people.

Youssef is the first economist we know to use anti-cyclical policies, that is, austerity in the boom cycle, which are not understood. But Yusef had the ability to persuade and implement these policies, knowing their implications, and these policies are now being called by the Bank for International Settlements and prominent economists after the global financial crisis in 2008 to avoid the accumulation of imbalances in the macro economy during the booms that lead to crises later.

There was disclosure and transparency in the design and implementation of these policies. Youssef explained to them the problem and the coming crisis, and how to confront it, and this strengthened confidence and certainty and pushes everyone towards cooperation to make the policies succeed in achieving their goals.

He is also the first to know who used hedging policies by storing, saving, and accumulating resources during surplus times, to be used in times of recession, to smoothly manage the economic cycle and mitigate the severity of the downturn, which is the idea on which sovereign funds were recently built to manage the oil cycle.

Managing the economic cycle in the GCC countries

In the GCC countries, there is complete dependence on oil, failure to diversify, failure to forecast, weakness in hedging, failure in managing the (oil) economic cycle, no transparency, no oversight, no accountability, no responsibility; Rather, policies of expansionary, wasteful reactions with surpluses, austerity deflation and taxes with recession prolonging and deepening the recession.

The GCC states use half of the fiscal policy – the government spending policy – in response to the oil cycle. That is, an expansion of spending with boom and austerity with deflation, and monetary policy and exchange rate policy are disrupted due to the peg to the dollar, and this puts pressure on reserves and exacerbates the economic cycle situation, as deflation deepens with recession, and inflation rises in popularity.

The narrowing of policy space due to the pegging of currencies puts great pressure on reserves and sovereign funds to compensate for the failure of policies to manage the oil cycle, and on the one hand this constitutes an additional burden on the reserves to stabilize the exchange rate, while a flexible and countercyclical mixture of the three policies is required; Financial, monetary and exchange rate.

The flexibility of the exchange rate helps absorb oil shocks, diversify the economy, and liberalize monetary policy, in order to direct the management of the local economic cycle, and pegging currencies paralyzes monetary policy and exchange rate policy, and keeps reserves vulnerable to depletion, and currencies subject to speculation during severe economic and political crises.

Allowing the exchange rate to decline and rise with the price of oil helps to meet the challenges of public spending when oil revenues are low, and to reduce inflation rates when they are high.

In this context, the floating of the Russian ruble gave Russia an advantage over Saudi Arabia and the Gulf countries in absorbing oil shocks and bearing its decline for longer periods. Russia has learned from the experiences of previous oil price collapses, while there is an almost complete belief in the GCC countries that the peg to the dollar is valid for every time and place.

Countries with fixed exchange rates face greater challenges in public spending due to the collapse of oil prices, so they either cut spending, withdraw reserves or borrow (to finance deficits), and countries that cannot afford any of that will be in a difficult situation and face great challenges.

The pegging of currencies poses multiple challenges to the GCC countries, on the one hand depleting reserves to compensate for the failure of monetary policies and the exchange rate in the face of the collapse of oil prices, due to the paralysis caused by the peg, and on the other hand, a large part of the reserve is set aside to defend fixed exchange rates.

Reserve levels of foreign exchange are low in Bahrain (in particular), which threatens to put pressure on the Bahraini dinar again and a crisis in the exchange rate, which may affect the Sultanate of Oman (due to the similar circumstances), and at that time the infection could spread to other members of the Gulf dollar peg, such as Saudi Arabia, for example. .

The only development achieved by the GCC states since the first oil boom in the 1970s is in the aspect of building (sovereign) hedge funds, but this is not enough, as this reserve will be eroded in light of the failure to diversify and reform the structure of macroeconomic management, by adopting an exchange rate system. And a more flexible monetary policy, and two directions to manage the oil cycle and diversify the local economy.

The Gulf sovereign funds still need a lot of reform and development, as they are the least transparent around the world, and it does not know what enters or comes out of them, nor how they are managed, and are not subject to accounting and liability standards, and their sizes are smaller than they are supposed to be compared to the huge income achieved by their countries during The recent oil boom.

Economic diversification

Economic diversification in the Gulf states failed for two reasons: economic abundance (enormous natural resources), and political cost. Economic diversification is a political decision, and it has economic (reforms) requirements and political costs, and a successful diversification process that will undermine the Gulf rentier growth model based on rent deduction and redistribution in a way that is consistent and maximizes the chances of staying in power, and this will constitute a threat to the existing political system of the Gulf rentier state.

Diversification is against the autocratic nature of the rentier state, because it strips it of the most important constituents of its survival, which is the mechanism of rent distribution, and the diversity of the rentier state will only be forced, that is, when its natural resources are depleted or depleted, or pressured economic or political transformations.

Lessons in vision and leadership from Joseph’s story

The first condition for leadership and policymaking is the availability of the vision, so the policy maker must have the ability to form a future vision, anticipate what the future might be, and develop worst-case scenarios for future crises and prepare for them by developing appropriate solutions proactively.

In order to form visions and a sound outlook for the future, there is a need to build research capacity at the level of the institution and the ministry, and attention to researchers, research, professional and scientific publication, and the accumulation of specialized human capital, and this will not be done if the administration is weak and incompetent.

This is the function of the state, and that requires creative and creative leadership and management competencies that can form future visions, and draw and implement sound policies based on them.

Those who are in charge of the public sector, including ministries, institutions, ministers and officials, must have the ability to form visions for their sectors, anticipate what the future will be in their fields, and set appropriate plans for the upcoming transformations and crises.

This requires leadership competencies that can foresee the future and design appropriate policies, administrative competencies that can implement them, leadership and administrative competencies that can attract and accumulate human capital, and build national capacities and competencies because they need them and are not afraid of them.

In order to form visions and a sound outlook for the future, there is a need to build research capacity at the level of the institution and the ministry, and attention to researchers, research, professional and scientific publication, and the accumulation of specialized human capital, and this will not be done if the administration is weak and incompetent.

The weak and incapable administration is afraid of competencies and combats them, and works to empty the institution and the ministry of them. Because it sees it as a source of competition or a threat to its interests and its survival and the survival of those who inherit it in the position, and this leads to the demolition of human capital and sends wrong messages that distract young people from building their capabilities, and lead to the deterioration and erosion of public sector outputs.

As far as the efficiency of management in the public sector is determined, the ceiling of human capital is determined in it, so efficient management gives a high ceiling, and weak management gives a low ceiling that limits the formation of human capital.




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