One expected outcome of transparent and accountable governance under
the rule of law is financial transparency, which is also an intrinsic component
of governance. Optimal economic policies are crafted so as to be as responsive as
possible to civil society while encouraging free and competitive markets in which
the productive forces of the private sector may flourish. Sound regulations and
macro-economic policies are like the balance wheel of a clock connecting the state
in harmony with the private sector and civil society.
Most Arab states have made major commitments to economic reforms that are designed
to liberate their markets from financial oppression and other inefficiencies, while
preserving the industrial and social gains they made in the 1960s and 1970s, when
foreign aid, oil revenues, and other sources of capital were more abundant. Some
states have even encouraged or allowed elements of their civil societies to establish
chapters in Transparency International, a transnational NGO devoted to reducing
Virtually all Arab states have engaged in some reform along some of the dimensions
of financial transparency discussed below.
The "extractive" capability of a government to tax its citizens is sometimes taken
to be a primary indicator of political development, but it may simply reflect the
predatory, exploitative nature of a state. This section includes discussion of governmental
procedures to establish a budget and taxes, hence giving a background to governmental
financial transactions in a particular country. Of note in this aspect is an essential
similarity in the constitutional and legislative processes, across Arab states,
with respect to the state budget. Typically the legislative branch is charged with
approving the socio-economic plan, and approving government budgets and final accounts.
The legislature is not to be adjourned before endorsing the budget, but if it is
not approved before the new fiscal year, the previous budget is enacted until such
time as the new one is approved.
2. Public Audit
Public audit institutions serve the purpose of establishing and ensuring transparency
in financial transactions for both internal and foreign actors. By law, often codified
in their national constitutions, most Arab countries have an official public audit
institution. A small but growing number of Arab countries sponsor chapters of Transparency
International to combat corruption.
3. Public Procurement
The purchase of goods and services by governments and their public sectors is a
major source of corruption in many countries. A growing number of Arab countries
are making their procedures of soliciting tenders and evaluating offers more public
Banks, which allocate credit, are the major investors in the region because economic
enterprises tend to depend more on credit than on private capital and stock markets.
Sound banking sectors also tend to attract outside investors. Central banks, with
varying degrees of autonomy from their government ministries of finance and top
executive authorities, control monetary policy and thus manage their respective
The central banks also supervise their respective commercial banking systems and
have taken active measures to increase the amounts of financial information that
they publicly disclose, to control the quality of their loan portfolios and diminish
the proportion of non-performing loans, and to monitor accounts so as to prevent
money laundering and the financing of terrorist operations. The central banks have
also tended to encourage privately owned, nationally based financial institutions,
including the new Islamic banks. These banks have transformed old Islamic trading
practices into novel financial instruments for conducting transactions free of the
interest found in conventional Western financial systems.
A number of the Arab governments retain some overall planning authority or ministry
of the economy to regulate private as well as public investment, but they are also
engaging in a number of reforms to encourage privatization and the strengthening
of their private sector sectors.
6. Stock Markets
Capital markets, including local stock markets in most Arab states, help to generate
investment and economic growth. While most of the states in question have encouraged
the development of stock markets or their equivalents, there are wide variations
in the number of companies traded on the exchanges and the vitality of these institutions.
In varying degrees, too, governments have used the stock exchanges to sell shares
of state-owned enterprises to private investors, though most privatization has taken
the form of direct sales or distributions of shares to employees.
7. Financial Institutes
The publications, forums, and online presences of specialized economic and financial
institutes and think tanks have proliferated in recent years and tend to enhance
8. International Transparency Standards
The Arab countries have become more willing in recent years to allow the International
Monetary Fund to publish the annual surveys of the respective economies under Article
IV and even, where relevant, the agreements reached with the IMF concerning the
pursuit of economic and financial reforms. Some countries have enrolled in the IMF's
General Data Dissemination System, and a few have further qualified to join the
IMF's Special Data Dissemination Standard. Most countries have also engaged with
the IMF and World Bank in publishing Reports on the Observance of Standards and
Codes. Activities of private international rating agencies also reflect increased
transparency. Standard & Poor's or Moody's rates components of the financial systems
of most Arab countries.