The Effect of Political Risk on Financial Stability in MENA Region

This study investigates the impact of political risk, represented by political index for each country, on the financial stability in Middle East and North Africa (MENA) region, which is divided into three groups according to the level of income during 2009-2021. Financial stability is measured by a Z-score and an aggregate banking stability index. This has been applied on 9 countries using panel data analysis. The findings reveal that political risk has a significant negative effect on financial stability partially, most notably on the Z-score side. Macroeconomic factors, including broad money, domestic credit to private sector by banks, GDP growth, income, and market capitalization of listed domestic companies, are also identified as determinants of financial stability. The study contributes to the literature by providing empirical evidence on the impact of political risk on financial stability in MENA region over 13 years. Practical implications for regulators, policymakers and investors are discussed, highlighting the need for a better understanding of political, economic and health risks and their effect on stock performance.