The decline of Arab currencies and the collapse of some of them affected economies and citizens alike (agencies)
In the early 1980s, Arab currencies, including the currencies of non-oil countries, represented a strong image in the exchange market, against foreign currencies.
You can imagine that the US dollar was according to the numbers of the World Bank database:
Less than an Egyptian pound (70 piasters only).
3.9 Syrian pounds.
Jordanian dinar 3 dollars.
The Sudanese pound is equivalent to 2.6 dollars.
The Somali shilling is equivalent to 3.4 dollars.
The Iraqi dinar is equivalent to two dollars.
But the decade of the 1980s had its consequences, as a number of Arab countries followed the socialist economic system and state control, and most of their foreign dealings were carried out according to the mechanism of equal deals, and foreign dealings were by their nature limited, due to working according to the policy of replacing imports with exports, through public sector companies.
There was no need to travel abroad and need foreign currencies; They represent a large burden and demand for foreign exchange, in addition to the monetary policy that adopts an administrative pricing system for the local currency, and thus the exchange rates of Arab currencies do not operate according to the mechanism of supply and demand.
Before the liberalization of the exchange rate in the Arab countries during the 1980s, obtaining foreign exchange required conditions that may not be available to some, and banks did not meet the needs of foreign exchange seekers (however few they were), which created a parallel market for foreign exchange, but it was not active. Or significantly affecting the exchange rate.
While the situation in 2024 is significantly different, as the exchange rates of Arab currencies for non-oil-producing countries are facing strong waves of decline against foreign currencies.
The official exchange rates for the US dollar are currently as follows:
30 Egyptian pounds.
About 546 Sudanese pounds.
About 1,450 Iraqi dinars.
1114 Yemeni riyals.
492 Syrian pounds.
571 Somali Chalet.
3.1 Tunisian dinars.
The Unified Arab Economic Report for 2022 monitored the decline in the value of some Arab currencies in 2021:
The Sudanese pound declined in value by 588%.
And the Yemeni riyal by 314%.
The Libyan dinar is 224%.
And the Syrian pound by 140%.
How did that happen?
Factors of decline and collapse
1- Corruption
Among the factors that helped the collapse of Arab currencies was the high rates of corruption, especially in countries experiencing political and security instability.
The Transparency International report for 2023 found that all countries whose currencies collapsed or declined in the Arab region have high rates of corruption. Somalia occupies the bottom of the list of countries on the Transparency Index, ranked 180, Syria ranked 177, Yemen ranked 176, Libya ranked 170, Iraq ranked 154, and Egypt ranked 108, knowing that the index includes 180 countries.
We must differentiate between the collapse of the currencies of some countries and the decline of currencies in others, especially during the past two decades.
What happened in Syria, Lebanon, Sudan, Yemen, Somalia and Iraq is undoubtedly a collapse. As for the situation in Egypt and Tunisia, it is still in the context of a major decline and has not yet reached collapse, but there are no strong production bases in both Egypt and Tunisia that would help them emerge from the decline. The value of the currency, so that work is done to increase exports.
2- Increased demand for foreign exchange
In the early nineties of the 20th century, the world witnessed the start of economic globalization, and Arab economies took on the garb of market economies and modified their monetary, financial, and production policies.
The majority of non-oil Arab countries entered into reform programs with the International Monetary Fund, obligating them to liberalize the exchange rates of their local currencies, which put the Arab currencies in front of a new equation.
In light of the development of foreign economic relations, the movement of imports of goods and services revived, and travel was allowed for all categories of businessmen, students, and those wishing to engage in foreign tourism, which generated a new demand for foreign exchange that had not existed before.
The process of tight economic management was not undertaken by the Arab governments to enter into the struggle of economic globalization. Rather, the state’s exit from economic activity was treated as a disavowal of its responsibility for economic performance, and this is not true. Even if the state entrusts the production and service side to the private sector, it remains responsible for Overall planning, so that macroeconomic indicators are controlled and mutual influences are balanced, so that one sector does not bear more burdens than the other sector, or one indicator negatively affects the performance of the other indicators.
The numbers indicate a significant development regarding foreign trade in the Arab world. In 1990, Arab imports of goods and services amounted to 175.6 billion dollars, while in 2020 they amounted to 922.2 billion dollars, meaning that the percentage of increase in these imports amounted to 426%, and the same is true for Arab exports. Of goods and services, they amounted to about $307 billion in 2001, while they reached $936 billion in 2020, meaning that these exports increased by 204%.
Although the numbers reflect the reality of the Arab world as a whole, all of the non-oil Arab countries suffer from a deficit in their foreign trade relations, which has negatively affected their foreign exchange reality and increased demand for the dollar.
For example, Egypt's exports of goods and services in 1980 were about $6.6 billion, then they rose in 2022 to $71 billion, while its imports of goods and services rose during the same period from $9 billion to $104 billion. We find that the deficit rose from $2.4 billion to $33 billion during this period, which represents a vivid picture of the increased demand for foreign exchange.
3- Lack of political stability
In addition, some Arab countries witnessed political and security events that greatly harmed their economic situation, such as Somalia. State institutions collapsed in the early 1980s, and Sudan was exposed to successive political events, the most damaging to the economic reality was the secession of South Sudan in 2011, then the events of April 2019 that toppled the Bashir regime.
The same situation is in Iraq, which was subjected to the American occupation in 2003, while several Arab countries after the Arab Spring were exposed to armed conflicts in Libya, Syria, and Yemen. Lebanon was also exposed to an economic crisis at the end of 2019, which deepened in 2020 and beyond.
Egypt and Tunisia also experienced negative economic events after the end of the Arab Spring era.
4- Decline in foreign reserves
In light of the previous fluctuations in Arab countries that collapsed or the value of their currencies declined, their other economic indicators, such as foreign exchange reserves, were affected.
World Bank figures monitor the following:
In Yemen, foreign exchange reserves declined from $8.1 billion in 2008 to $1.2 billion in 2022.
In Tunisia, reserves declined from $11.2 billion in 2009 to $8 billion in 2022.
In Libya, reserves declined from $124 billion in 2012 to $86 billion in 2022.
Regarding foreign exchange reserves in some Arab countries, we find that they suffered a real collapse, but what helped them maintain some balances that could be considered acceptable was the Arab oil-producing countries depositing sums in the central banks of these countries, to support their reserves.
Egypt and Tunisia are clear examples of this.
What is the impact of the collapse of Arab currencies on citizens?
In light of the collapse of Arab currencies in non-oil countries, the citizen has borne several burdens, most notably the collapse of the value of savings for those who keep their savings in local currencies. You can imagine the situation in Sudan, after the dollar was equivalent to between 40 and 50 pounds, it jumped to more than 500 pounds. .
In Egypt, for example, at the beginning of the third millennium, the dollar was at around 3.30 pounds, and in 2024 it became at 30 pounds at the official rate, and the situation was also repeated in the rest of the countries that witnessed the decline or collapse of their local currencies.
Inflation was an inevitable result of the decline and collapse of Arab currencies. According to the numbers of the quarterly bulletin for the fourth quarter of 2023, issued by the Arab Investment Guarantee Corporation, inflation in Sudan in 2023 reached about 256%, in Lebanon 238%, in Syria 135%, and in Egypt 23%. And in Yemen, 14.9%, taking into account that inflation rates in those countries witnessed higher jumps than what was recorded for the year 2023, but the decline in the 2023 numbers is attributed to the nature of the index that is compared to last year.
One of the negative phenomena that has been associated with the decline and collapse of Arab currencies is the phenomenon of dollarization, where savings owners and merchants tended to link their savings or commercial activities to the dollar, buying and selling, which made everyone deprive themselves of local currencies.
The disease of dollarization moved to creating new speculators in foreign currencies, which burdened economic activity with abandoning production, or creating new jobs, stabilizing existing ones, and expanding the scope of rentier businesses.
As a result of high inflation rates for successive years, and without an improvement in productive and economic performance in general, poverty rates have increased. ESCWA, in its survey of economic and social conditions for the year 2021-2022, showed that 35.3% of the total population of the Arab region (excluding the Gulf countries and Libya) live below the line. Poverty, up to 130 million people.
The survey indicated that poverty had reached some countries suffering from the collapse of their currencies, such as Somalia at 72%, Yemen at 88%, Lebanon at 68.6%, Sudan at 54%, Iraq at 20%, and Egypt at 32%.
In some updates, whether by country or international data; There are other rates of poverty. In Egypt, the last statement on poverty levels was 29.7%, and in Syria, the Euro-Mediterranean Observatory stated that the poverty rate there included 90% of the people.
What are the future prospects for collapsing currencies?
The value of the currency in any economy comes to correctly reflect the economic situation, unless there is an exceptional case. Although the currencies of Libya and Iraq have declined as oil-producing countries, they are classified as developing countries, even before political or security crises occur.
Even if oil provides the countries that produce it with a better currency exchange rate, it has not changed the development reality at all.
The reality of the collapsed Arab currencies' exchange rate is not expected to improve in the short and medium term, due to the continuing state of political and security instability.
The performance of macroeconomic indicators is weak, in terms of:
Fragility of the domestic product.
The continuing deficit in the balance of payments.
Budget deficit.
Collapse of foreign exchange reserves.
This weakens the hope of improving the exchange rate of the collapsed or declining Arab currencies.
Even in Iraq and Libya, which have a good share of foreign exchange inflow due to oil exports; High rates of corruption stand as an obstacle to economic development and to improving exchange rates.
In Egypt and Tunisia, the exchange rate of their currencies is not expected to improve during the next stage, in light of the existence of agreements with the International Monetary Fund.
The measures required to be applied cannot help improve the exchange rate, but rather they are required to reduce the value of their national currency.
As for the conflict countries (Syria, Yemen, Libya, Iraq, Somalia, Sudan), some of them have an absence of state authority, and thus the absence of monetary authorities’ control over managing the exchange rate, or implementing the open market mechanism due to the absence of the necessary reserve balances, or controlling incoming flows, especially from Workers abroad, as it is carried out almost entirely from outside the framework of the banking system, and therefore it is not expected to improve the exchange rate in these countries.
Source: Al Jazeera