Finance Algeria Protects Dinar As US Dollar Depreciates

18 February 4, 2018 Economy Finance

Algeria protects dinar as US dollar depreciates Briefs

Lamine Ghanmi Egypt’s Sisi inaugurates Tunis Zohr gas field lgeria is artificially prop- ping up the dinar to fi- Egyptian President Abdel Fattah nance increased state al-Sisi inaugurated the offshore Zohr spending in 2018 ahead gas field, aimed at making Egypt of presidential elections. self-sufficient in natural gas by the TheA move comes despite a spillover end of this year. effect from the depreciation of the “We are now entering into the self- US dollar, which cancelled some of sufficiency stage… and, God willing, Algeria’s gains from rebounding oil by the end of the year we will have prices in 2017. reached self-sufficiency,” Egyptian The decline of the US dollar, a de- Petroleum Minister Tarek al-Molla velopment that confounded Alge- said at a ceremony broadcast live on rian analysts and economists, com- state television. plicated the government’s efforts to In December, the Oil Ministry said trim imports to preserve the coun- it was starting production from the try’s shrinking foreign currency re- field discovered in 2015 by Italian serves. energy giant Eni at an initial 350 mil- “The reality today on the curren- lion cubic feet a day. cy exchange markets shows a weak dollar,” said Algerian economist (Agence France-Presse) Hassan Haddouche. “Unfortunate- ly, a weak dollar and a strong euro do not help our country’s economic Kuwait cabinet affairs.” Over-valued. A man counts Algerian dinar banknotes in Algiers. (Reuters) “The reason is that our oil and approves budget gas are sold abroad in the US dollar while almost half of (our) imports its economic policy. the value of the dinar, which will “There is only one explanation for with huge shortfall are paid in euros,” he said, adding Algerian President Abdelaziz continue in 2018 and the following such a dangerous deficit target,” he that this resulted in “the cancelling Bouteflika, in a rare interview with three years,” said Haddouche. “The said, “the presidential election.” Kuwait approved its budget for of part of the gains from oil prices, Oxford Business Group January 24, finance minister, Abderrahmane Algeria’s central bank bought the 2018-19 fiscal year, projecting a which rose around 20% in annual outlined a bold plan to wean Algeria Raouya, told the parliament during most of the currency reserves from huge deficit for the fourth consecu- average last year.” off its reliance on oil and gas reve- the debate of the budget in Decem- state energy firm Sonatrach and tive year because of low oil prices. The US dollar lost 10% of its val- nue and towards diversification and ber that the parity of the dinar will other oil producers from 2000-14, Next year’s deficit is estimated ue on the DXY index in 2017 and growth. He said the government had remain at least at 115 dinars per one when there were higher current at $16.7 billion, 13.5% of the OPEC has dropped approximately 1.5% in implemented an economic growth dollar until 2020.” account surpluses. member’s GDP. 2018. model in 2017 that would run for Nour Meddahi, who teaches eco- During that time, it bought the Kuwait Finance Minister Nayef al- The sale of oil and gas abroad five years and that includes an “economics at the Toulouse School of dollar for around 75 dinars. Today, Hajraf said the government would accounted for 94.5% of Alge- nomic diversification project with a Economics, said the move was “cer- one dollar is worth 115 dinars. Al- withdraw from the state reserve ria’s exports in 2017. Sales were 2030 horizon.” tainly the biggest mistake in the gerian economists estimate that a fund and borrow on the domestic $34.8 billion, up from $30 billion the “The model will also make sig- Algerian government’s economic gain of one dinar in the exchange and international debt markets to previous year. nificant GDP per capita growth pos- policy.” rate translates to 25 billion dinars in finance the shortfall. Total imports fell to $46 billion sible, doubling the participation of “Algeria’s central bank should profit for the state. in 2017, compared to $47 billion in the manufacturing industry to 10%, have continued depreciating the Foreign reserves stood at (Reuters) 2016. The government had sought to a successful transition… and result dinar. It is a necessary measure to $97 billion in 2017, down from $193 slash imports by almost $10 billion in a more diversified export portfo- preserve the country’s economy billion three years ago. by tightening its licensing system. lio that will be supporting financing even though it would have the ef- Trade Minister Mohamed Ben- Gulf State The government said it wants to growth,” Bouteflika said. fect of causing price hikes,” added meradi, in a January 28 interview reduce costs to $30 billion in 2018 Local economists warned that Meddahi. with Algerian state radio, noted that cyber-security by halting imports of more than 900 overvaluing the dinar relative to the By law, profits earned by the “almost 75% of imports are done by goods and products. The policy is dollar runs counter to most govern- central bank from foreign curren- the private sector” and that “the di- growing rapidly part of a broader economic strategy mental diversification plans. cy trading are funnelled into the nar is likely overvalued at the offi- to cut trade, current account and They said Algeria’s central bank state coffers to finance government cial exchange market and it should DarkMatter, a little-known cyber- budget deficits in 2020 after presi- was allowing the value of the dinar spending. be brought to the same value as the security company in the United dential elections in April 2019. to remain abnormally high to in- “The budget deficit for 2018 is at black market.” Arab Emirates recruiting executives Algerian economists said a strong crease profits from the sale of for- 9.4% of GDP versus 5.6% in 2017,” At Algiers’ Square Port Said, the who have worked for Western in- euro combined with an over-valued eign currencies from its foreign re- said Meddahi, adding that he ex- main foreign exchange market for telligence services, is turning over dinar and declining dollar would serves and reduce inflation. pected the government to fill the the country’s parallel economy, the hundreds of millions of dollars a make it difficult for the government “It is without a doubt the begin- gap with profits the Central Bank dinar traded at 171 to the US dollar year, largely in contracts with the to reconcile the conflicting aims of ning of stabilisation-revaluation of earns through the sale of reserves. on January 31. government, its CEO said. DarkMatter was founded three years ago in Abu Dhabi by CEO Faisal al-Bannai, an Emirati entrepreneur What’s behind the surge of Libya’s bungee-jumping dinar? known for setting up regional mo- bile phone retailer Axiom Telecom. Michel Cousins rable decline in the black-market as to why the value of the dinar Family heads may claim the Approximately 80% of its work is rate, interrupted by occasional brief surged, among them is that the $400 allowance for each member with the UAE government and relat- rallies. market was calmed by the prospect on their family book at the official ed entities. Among its work, Dark- Tunis Fuelled by growing demand for of elections this year and the fact rate, which averaged approximate- Matter has advised federal cyber- dollars, plus the printing of ever that Libyan oil production is up to ly 1.35 dinars to the dollar. Banks security agency National Electronic very weekday in Tripoli, more bank notes by the Tripoli- 1.2 million barrels a day. gave them a debit card to be used Security Authority (NESA). immediately after Zuhr based Central Bank and the rival Another theory is that it the situ- abroad. If there were five members prayers, men can be seen parallel central bank in the east, ation was orchestrated by Central in the family, the debit card could (Reuters) pulling large suitcases to- the black-market rate slid continu- Bank Governor Saddek Omar Elk- be used to withdraw up to $2,000. wards the square in the ously. aber to break the black market, It is said that organised groups EOld City, just behind the palatial art When it passed the 3-dinar-to-$1 reinforce his popularity with the offered up to 1,000 dinars for deco building that houses the Cen- mark in August 2015, the Rada forc- public and keep his job. In Decem- each $400 worth of credit on Morocco’s tral Bank of Libya. es of strongman Abdul Rauf Kara ber the House of Representatives, the cards, taking them by the They are black-market currency arrested dealers, accusing them which had sacked Elkaber as gov- bucketful abroad — mainly to currency move dealers, carrying tens of thousands of profiteering. There were arrests ernor, appointed Mohamed Shukri Istanbul — where the cash was of dollars, dinars and other curren- again in April 2016, which briefly to the job and on January 29 swore withdrawn. It was returned to is step in right cies — all in cash. In the square, just halted the decline but only be- him in to the post. Libya in dollars and exchanged for by the clock tower built by some cause, with the dealers temporarily The real cause of the dinar’s surge Libyan dinars at the much higher direction – IMF long-forgotten Ottoman pasha, not operating, no one was able to is the flood of dollars into Libya. It black-market exchange rate. Hun- they buy and sell the money at the buy or sell currency. is reported that $10 million a day dreds of millions of dinars in profit Morocco’s more flexible hard cur- daily ad hoc bourse, which sets the By last December, the rate was is entering the black market. The is thought to have been made at the rency system is a step in the right di- black-market exchange rate. down to 9.70 dinars to the dollar main reason for the flood has been Libyan state’s expense. rection to make the kingdom more Black marketeers they may be and it was widely expected to break the Central Bank’s $400 allowance The allowance was increased to attractive to investment and turn but, under the windows of the Cen- through the 10-dinar mark and go to every Libyan in foreign currency $500 in January. Additionally, Liby- it into a financial hub for Africa, a tral Bank of Libya, they have be- much further. At the beginning of per year. ans can apply for it and transfer the senior International Monetary Fund come major players in the Libyan the year, however, the dinar sud- At the beginning of January, it $500 to someone else with a dollar (IMF) official said. economy. Because of the Central denly started to rally. The dollar said it had paid out approximately account at the same bank in Libya. Morocco recently began a more Bank’s restrictions on foreign cur- rate rolled back, steadily moving $2.8 billion in 2017 to almost 7 mil- This has made it even easier for the flexible foreign exchange system rency exchange and letters of cred- down, reaching 4.50 dinars before lion people registered as Libyan dealers to buy the dollars from oth- under free-market reforms recom- it, the black market has become the settling at 5.15 dinars to the dollar. citizens who had claimed the allow- ers, withdraw them in cash abroad mended by the International Mon- only source of foreign exchange for People lost fortunes overnight ance. That figure raised eyebrows and then, back in Libya, exchange etary Fund to protect the North most Libyans, including those in but it has been a roller coaster ride since the estimated population of them for dinars. African economy against external the business community. that most Libyans are grateful for. Libya is put at no more than 6.5 mil- The question in many Libyan shocks and safeguard its reserves. Three years ago, it did not mat- Prices fell dramatically as a result. lion. minds is whether the new rate will “It’s a reform that goes in the right ter a great deal. The difference be- The prices of everything from sec- There have been other concerns stabilise around the 5-dinar mark or direction,” Jihad Azour, director of tween the official exchange rate ond-hand cars to food have tum- about the allowance, not least al- go back up, with painful effects on the IMF Middle East and Central set by the Central Bank — about bled. In two weeks, the price of a legations that a massive scam is be- prices. No one, though, can give an Asia department, said at an econom- 1.35 Libyan dinars to $1 — and the kilo of onions went from 3 dinars to ing perpetrated by groups using it answer. ic conference in Marrakech. one operated by the black market less than 1 dinar. The price of bread to profiteer from the difference be- remained small. Since mid-2015, dropped 20%. tween the official rate of exchange Michel Cousins is a contributor to (Reuters) however, there has been an inexo- There are a wealth of theories and the black-market rate. The Arab Weekly on Libyan issues.