In the early 1980s, Arab currencies, including currencies of non-oil countries, represented a stronger image in the exchange market against foreign currencies.
You can imagine that the US dollar was According to World Bank database numbers:
- Less than an Egyptian pound (only 70 piasters).
- 3.9 Syrian pounds.
- Jordanian dinar 3 dollars.
- The Sudanese pound is equal to 2.6 dollars.
- The Somali shilling is equal to 3.4 dollars.
- The Iraqi dinar is equal to two dollars.
But the 1980s had their own consequences, because many Arab countries adhered to the socialist economic system and state control, and most of their foreign transactions were carried out according to the mechanism of similar deals, and foreign transactions were limited by the nature of their public sector. Due to working according to the policy of replacing imports with exports through companies.
There was no need to travel abroad and exchange foreign currency; They represent a large burden and demand for foreign currency in addition to a 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. Are.
Before the liberalization of exchange rates in the Arab countries during the 1980s, obtaining foreign currency required conditions that may not have been available to some, and banks were able to meet the needs of those seeking foreign currency (though few). Due to which a parallel market for foreign exchange was created. exchange, but it was not active. Or was not significantly affecting the exchange rate.
Whereas in 2024 the situation is quite different, as the exchange rates of Arab currencies for non-oil producing countries are facing a strong wave of decline against foreign currencies.
The official exchange rates for the US dollar are currently as follows:
- 30 Egyptian pounds.
- Approximately 546 Sudanese pounds.
- Approximately 1,450 Iraqi dinars.
- 1114 Yemeni Rial.
- 492 Syrian pounds.
- 571 Shalta Somalia.
- 3.1 Tunisian dinar.
The Integrated Arab Economic Report for 2022 monitored declines in the value of some Arab currencies in 2021:
- The Sudanese pound lost 588% in value.
- and Yemeni Rial 314%.
- The Libyan Dinar is up 224%.
- and the Syrian pound by 140%.
how did that happen?
factors of decline and fall
Among the factors that helped the collapse of Arab currencies were high rates of corruption, especially in countries experiencing political and security instability.
A 2023 Transparency International report found that countries in the Arab region whose currencies collapsed or collapsed had higher rates of corruption. Somalia is at the bottom of the list of countries in the Transparency Index, ranked 180th, Syria is ranked 177th, Yemen is ranked 176th, Libya is ranked 170th, Iraq is ranked 154th and Egypt is ranked 108th. That index includes 180 countries.
We should distinguish between the collapse of the currencies of some countries and the decline of the currencies of other countries, especially during the last two decades.
What happened in Syria, Lebanon, Sudan, Yemen, Somalia and Iraq is undoubtedly a collapse. As far as the situation in Egypt and Tunisia is concerned, it is still in the context of a major decline and has not yet reached collapse, but there is no strong production base in both Egypt and Tunisia that would prevent them from decline. Will help you emerge. Value of currency, so that work can be done to increase exports.
2- Increasing demand for foreign exchange
In the early nineties of the 20th century, the world witnessed the beginning of economic globalization and the Arab world assumed the guise of market economies and modified their monetary, financial and production policies.
Most non-oil Arab countries entered into reform programs with the International Monetary Fund, obliging them to liberalize the exchange rates of their local currencies, which exposed Arab currencies to a new equation.
In the 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, creating a new demand for foreign exchange. Was born. Did not exist before.
The process of tight economic management was not adopted by Arab governments to enter into the struggle for economic globalization. Rather, the exit of the state from economic activity was construed as a rejection of its responsibility for economic performance, and this is not true. Even if the state hands over the production and service side to the private sector, it remains responsible for overall planning, so that macroeconomic indicators are controlled and mutual effects are balanced, so that one sector does not bear a greater burden than another, or a Indicators should not suffer negatively. Affects the performance of other indicators.
The numbers indicate a significant development regarding foreign trade in the Arab world. In 1990, Arab imports of goods and services were $175.6 billion, while in 2020 it was $922.2 billion, which means the percentage of increase in these imports was 426%, and the same is true for Arab exports. In goods and services, in 2001 they amounted to approximately $307 billion, while in 2020 they reached $936 billion, which means that these exports increased by 204%.
Although the numbers reflect the reality of the Arab world as a whole, all non-oil Arab countries suffer from deficits in their foreign trade relations, which has negatively affected their foreign exchange realism and increased demand for the dollar.
For example, Egypt's exports of goods and services were approximately $6.6 billion in 1980, then increased to $71 billion in 2022, while imports of goods and services increased from $9 billion to $104 billion during the same period . We found that the deficit increased from $2.4 billion to $33 billion during this period, representing a vivid picture of rising demand for foreign exchange.
3- Lack of political stability
Furthermore, some Arab countries witnessed political and security incidents that significantly damaged their economic situation, such as Somalia. State institutions collapsed in the early 1980s, and Sudan faced frequent political events, the most damaging to the economic reality being the secession of South Sudan in 2011, then the April 2019 events that led to the overthrow of the Bashir regime.
Same is the situation with Iraq, which was a victim of American occupation in 2003, while after the Arab Spring, many Arab countries were facing armed conflicts in Libya, Syria and Yemen. Lebanon also eventually faced an economic crisis. 2019, which deepened in 2020 and beyond.
Egypt and Tunisia also experienced negative economic events following the end of the Arab Spring era.
4- Decline in foreign reserves
In the wake of past fluctuations in Arab countries, which collapsed or had their currencies decline in value, their other economic indicators, such as foreign exchange reserves, were affected.
World Bank data tracks the following:
- In Yemen, foreign exchange reserves are expected to decline from $8.1 billion in 2008 to $1.2 billion in 2022.
- In Tunisia, reserves are projected to decline from $11.2 billion in 2009 to $8 billion in 2022.
- Reserves in Libya are expected to decline from $124 billion in 2012 to $86 billion in 2022.
With regard to foreign exchange reserves in some Arab countries, we find that they suffered real decline, but what helped them maintain some balance, which could be considered acceptable, was that the Arab oil producers Countries were depositing money in the central banks of these countries to support themselves. store.
Egypt and Tunisia are clear examples of this.
What effect does the collapse of Arab currencies have on citizens?
In light of the collapse of Arab currencies in non-oil countries, citizens have suffered many burdens, particularly the decline in the value of savings for those who hold their savings in local currencies. You can imagine the situation in Sudan, back then the dollar was worth between 40 and 50 pounds, it rose to more than 500 pounds.
For example, in Egypt, at the beginning of the third millennium, the dollar was at about 3.30 pounds, and in 2024 it became 30 pounds at the official rate, and the same situation was repeated in the rest of the countries. Decline or collapse of their local currencies.
Inflation was an inevitable consequence of the decline and fall of Arab currencies. According to numbers from the quarterly bulletin for the fourth quarter of 2023 released by the Arab Investment Guarantee Corporation, inflation reached about 256% in Sudan in 2023, 238% in Lebanon, 135% in Syria, and 23% in Egypt. and Yemen, 14.9%, noting that inflation rates in those countries saw a higher jump than those recorded for the year 2023, but the decline in the 2023 numbers is attributed to the nature of the index. Has been compared to last year.
One of the negative phenomena associated with the decline and fall of Arab currencies is the phenomenon of dollarization, where savings owners and traders began buying and selling their savings or commercial activities pegged to the dollar, thereby depriving themselves of everyone else. Was. Local currencies.
The disease of dollarization translated into the creation of new speculators in foreign currencies, which burdened economic activity with abandoning production, or creating new jobs, stabilizing existing jobs, and expanding the scope of rentier businesses.
As a result of high inflation rates for consecutive years, and without improvements in general productive and economic performance, poverty rates have increased. ESCWA showed in its survey of economic and social conditions for the year 2021-2022 that 35.3% of the total population of the Arab region (except the Gulf countries and Libya) lives below the poverty line, up to 130 million people.
The survey indicates that poverty has reached some countries suffering from the collapse of their currencies, such as 72% in Somalia, 88% in Yemen, 68.6% in Lebanon, 54% in Sudan, 20% in Iraq and 32% in Egypt. Is.
In some updates, whether by country or international data; There are other poverty rates as well. In Egypt, the last statement on poverty levels was 29.7%, and in Syria, the Euro-Mediterranean Observatory said the poverty rate there included 90% of people.
What are the future possibilities of currency collapse?
The value of a currency accurately reflects the economic situation in any economy, unless there are exceptional cases. 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 though oil provides better currency exchange rates to the countries that produce it, it has not changed the reality of growth at all.
As political and security instability continues, the exchange rates of the collapsed Arab currencies are not expected to improve in the short and medium term in reality.
The performance of macroeconomic indicators is weak in terms of:
- Fragility of household products.
- Persistent deficit in the balance of payments.
- budget deficit.
- Collapse of foreign exchange reserves.
Due to this, the hope of improvement in the exchange rates of the collapsed or falling Arab currencies has weakened.
Even in Iraq and Libya, where oil exports account for a good portion of the foreign exchange inflows; High rates of corruption stand as an obstacle to economic growth and improving exchange rates.
In Egypt and Tunisia, in the light of the existence of agreements with the International Monetary Fund, the exchange rates of their currencies are not expected to improve during the next phase.
The necessary measures to be implemented may not help in improving the exchange rate, rather they need to reduce the value of their national currency.
As far as conflict countries are concerned (Syria, Yemen, Libya, Iraq, Somalia, Sudan), some of them lack state authority, and thus no control over managing the exchange rate, or implementing open market mechanisms such as monetary There is lack of control by officials. Due to the absence of the necessary reserve balances, or especially to control flows coming from workers abroad, since this is almost entirely done from outside the framework of the banking system, and therefore the exchange rates in these countries No improvement is expected.