Policymakers’ Role in Reducing Uncertainty During Financial Crisis
Uncertainty and financial crisis
Uncertainty is one of the drivers of the financial crisis. Nowadays, the financial market continues to evolve, and some entities cannot be actively controlled by the government. For example, small companies that give loans to the local population are one of them. They tend to issue high volumes of financial securities and cash to citizens with high-interest rates. This situation creates an imbalance in the economy, as it is difficult to develop governmental interventions that will affect the unemployment and inflation rates in the desired way. Simultaneously, the era of globalization increased the number of players in the global arena. The unexpected actions of different governments such as adjustments of the currency exchange rates or the start of the war make the global economy and stock markets vulnerable and contribute to financial failure and unstable conditions.
How policymakers could reduce the uncertainty
There are several ways that the government can use to control uncertainty. In the first place, when designing solutions and evaluating situations, policymakers have to consider ‘what-if’ scenarios. In this instance, it forecasts the actions of the financial players and authorities and assesses potential reactions to these situations. Another approach is to monitor and control the impact of the major players on the economic stability of the country. For example, the policymakers can suggest imposing additional taxes on the firms that issue micro-loans. This procedure will decrease the amount of cash in the economy of the country and the growth rates of these financial actors. Apart from that, policymakers can suggest the sum of finances that has to be maintained in the national budget in the case of uncertainties. A combination of these actions will transform uncertainties into risks that can be considered as opportunities for growth and development.
Unemployment and the Labor Market
Explaining the nature of unemployment in the Gulf region
In the article, the author compares the working conditions and unemployment rates between high and low-skilled employees. This comparison reveals that the domestic labor market is imbalanced. Today, foreign workers with an extended set of competencies are prioritized among the companies operating in the private sector. Thus, the population of Gulf countries is majorly represented by low-skilled labor due to the lack of education and continuous population growth. It could be said that these findings reflect that there is an excess in the local workforce while complying with the features of structural unemployment.
Type of unemployment contributed to the 11.6% unemployment rate in Saudi Arabia in 2016
Based on the analysis conducted above, it could be said that structural unemployment contributes the most to the current unemployment rate. This situation takes place since the foreign workers are prioritized among international and private firms due to the sufficient educational background and training. Speaking of the locals, they are often associated with the low-skilled workforce. This matter tends to occur due to the lack of an effective educational background, the absence of a well-developed legal system, and a high percentage of foreign workers.
The government policies reducing frictional and structural unemployment by 2030 in Saudi Arabia
In the first place, to reduce frictional unemployment, the government should focus on providing favorable conditions to low-skilled workers. In this case, increasing the minimum wage, developing legal infrastructure, and providing medical assistance to this group of employees will attract more individuals to this sector while decreasing the unemployment rate. At the same time, encouraging the growth of the private sector can also cultivate economic development and create additional job places for the locals. As for structural unemployment, organizing compulsory training for the representatives of technical professions is one of them. Another step is to support various educational programs with technical specialization. These factors will contribute to the development of the required skills and minimize gaps in knowledge between foreign and local workers. Lastly, the government has to monitor the migration of foreign employees and control it by restricting the requirements for visas.
Economic Stabilization Policies
Forecasting the economic conditions in the first quarter of 2017
In the first quarter of 2017, the economy will continue to recover from the recession stage. It could be suggested that it can start experiencing slight growth in the first quarter. The governmental actions such as a reduction of the workweek and money supply implied that inflation and unemployment rates were high at the end of 2016. Decreasing their values had a positive effect on the average growth of GDP. At the same time, a short yield in governmental securities also signified that the country was entering the recession phase. It could be assumed that the implementation of these policies was effective, as the report signified positive dynamics in vendor deliveries while implying a slow increase in demand. Nonetheless, high rates in deliveries might also imply that high inflation created favorable conditions for international firms.
Stabilization policies to smooth the expected economic conditions in the first quarter of 2017
In the first place, the government has to continue controlling unemployment and money supply, as these actions will prevent the economy from rising rates. Another aspect that the National Bank should focus on is decreasing interest rates. In this instance, this procedure will upsurge the borrowing capacity and yield between different types of government bonds and cause an upward shift in expenditures of the households. These matters will increase aggregate demand while cultivating growth and encouraging the development of the local businesses. Along with that, to stabilize the local economy, the government cannot underestimate the significance of fiscal policy, as reducing taxes will also increase the contribution of the individual consumers to the national economy. A combination of these factors along with subsidiaries will create favorable conditions for the development of domestic producers. Nonetheless, the government has to control these changes precisely, as low inflation rates in the long-term may be a reason for the currency devaluation.