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Monday, December 4, 2023

Some currencies in Middle East still not performing

Currencies in the region, like those across emerging markets, have come under pressure, reflecting concerns to several facts.

A combination of macroeconomic and geopolitical factors is hurting several currencies in the Middle East, which have inevitably had ill effects on their countries’ economies, the agencies said.

Currencies in the region, like those across emerging markets, have come under pressure, reflecting concerns about their respective countries’ external vulnerabilities, weak economic outlook and the political and financial capacity of governments to manage crises.

Pressures on external finances include lower export earnings for commodity producers, plummeting non-oil goods exports earnings and services earnings from tourism, deep remittance losses due to stalled economic activity, massive portfolio outflows and reduced potential for foreign direct investment inflows.

Vulnerable economies have already seen their foreign reserves come under considerable pressure. Governments, however, are introducing measures to stem the trend, yet there are still many questions about if and when these currencies will be able to recover.

Egyptian pound

The Egyptian pound has continued its slide against the US dollar, with analysts predicting further devaluation, as Cairo seeks to meet a key International Monetary Fund requirement for a flexible foreign exchange mechanism as part of an agreement for a $3 billion loan.

The pound, on January 4, suffered its biggest one-day slide against the US dollar, depreciating by 8 per cent to 26.50 to the US dollar, which was also accompanied by a sharp increase in the interest rates on the one-year savings certificates to 25 per cent issued by the two large nationalised banks.

Egypt has devalued its currency three times since March.

Assuming the pound will be freely floated, or market-determined through the interbank system from now on, this would set the stage for substantial foreign portfolio inflows of more than $15 billion into both equity and debt by end of the year.

Lebanese pound

Crisis-hit Lebanon is grappling with its currency’s depreciation to record lows on the parallel market, prompting the country to slash the value of its currency to 38,000 pounds to the dollar on its Sayrafa exchange platform.

Lebanon is expected to post the second-highest inflation rate in the world this year, behind Sudan, according to Fitch Solutions.

Lebanon is in the grip of an economic crisis described by the World Bank as one of the worst in modern history and has failed to enforce critical structural and financial reforms required to unlock $3 billion of assistance from the International Monetary Fund.

Iraqi dinar

The value of the Iraqi dinar has further plummeted against the US dollar following new measures by the US Federal Reserve aimed at blacklisting several Iraqi banks that deal mainly with Iran.

The move has led to a scarcity of hard currency supply in the Iraqi market.

One US dollar is traded at 1,580 Iraqi dinars on the street, against the central bank rate of 1,470 dinars, state news agency Ina reported.

The Central Bank of Iraq has blamed the currency drop on “adopting mechanisms to protect the banking sector, customers and the financial system, as all foreign trade requirements … are fully covered by the official price”, Ina reported.

Iraq’s central bank has taken several measures to help stabilise the currency, including reducing the exchange rate for travel and ensuring a flow of dollars at the official rate.

Israeli shekel

The Israeli shekel declined about 12 per cent against the dollar in 2022, and there are no indications that it will improve soon given that inflation in the country rose sharply to 5.3 per cent in November — almost double the top end of the government’s targets of between 1 per cent to 3 per cent.

Inflation devalues a currency as it decreases the spending power of consumers.

Turkish lira

The Turkish lira lost more than 40 per cent of its value against the dollar in 2022. That is an improvement compared with the 77 per cent plunge it posted in 2021, with analysts saying it is now stabilising against the greenback.

The lira was trading at about 18.55 on Tuesday.

The government is working to boost the currency’s value, including what it calls “liraisation”, which aims to ensure the lira is the currency of choice in the country.

Turkey’s central bank also said on December 30 that it planned to increase the share of lira deposits to 60 per cent of all deposits in the country’s banking system over the next six months.

However, a remaining sticking point is consumer prices, which rose 64.3 per cent annually in December, the highest in more than a quarter of a century.

Iranian rial

Iran’s rial dived to a record low of 44,000 against the dollar on December 28, which was a 22 per cent decline in only a month.

This prompted the appointment of a new central bank chief in a bid to stem the currency’s fall. The rial, trading at about 41,850 on Thursday, has fallen more than tenfold since 2018.

Among the factors that are hitting the currency include continued civil unrest, the country’s continued isolation as a result of ties with Russia and fading hopes to revive the 2015 nuclear deal between Tehran and global powers, which the US withdrew from in 2018.

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