Which countries hold the largest FX reserves in the Middle East?

It's no secret that foreign reserves are an important indicator to the future economic health of any country. Maintaining these reserves helps nations offset risks and allows them to pay for top-priority imports and service debt taken on the international markets.

At their simplest, foreign currency reserves are a large quantity of currency held by a central bank, or major financial institutions, which can be used to pay for investments, debt, or to influence an exchange rate.

Due to the nature of the US dollar as the world’s preeminent currency since 1944, a majority of reserves are typically held in dollars. The euro is the second most held currency, followed by the Chinese renminbi.

Easily convertible commodities, such as gold, are also held by central banks as a hedge against dollar inflation, devaluation, and global risks. In times of economic doubt and uncertainty, investors will often put more emphasis on so-called “safe-haven” investments. This is one reason behind the rally in the gold price throughout 2019 as investors’ concerns rise over the US-China trade war and a global economic downturn.

The influence of foreign currency reserves in the Middle East has been impactful. For instance, Saudi Arabia’s recent upgrade in the MSCI index to emerging markets status has led investors to reexamine the country as an attractive investment destination. The Kingdom’s large pool of reserves helps to assuage investment fears, as it helps protect the country from future downturns.

In this light, Al Arabiya English put together below the top 10 countries of the Middle East by foreign currency reserves (including gold), according to data collected by the International Monetary Fund.

1.Saudi Arabia – $509.57 billion

Saudi Arabia central bank reserves are the largest in the Middle East by a significant factor, and the eighth largest in the world.

2.Israel – $115.27 billion

At year-end 2018, the Israeli central bank reported that the majority of its investments were in government assets (63.4 percent), followed by equities, corporate bonds, long term bonds of other public entities, and short-term assets.

3. UAE – $99.5 billion

The Central Bank of the UAE announced at the beginning of August that it would lower its interest rates by 25 basis points, following the US Federal Reserve move to lower the US base rate for the first time in a decade.

4. Libya – $85.34 billion

Libya’s ongoing economic crisis has resulted in the country using its foreign reserves to stave off disaster. In 2018, the World Bank issued a statement that the country’s spending meant that Libya was in danger of exhausting its foreign exchange reserves.

5. Iraq – $64.56 billion

The Central Bank of Iraq issued a statement at the end of 2018 stating that their foreign reserves had grown 32.6 percent throughout the year and that Iraq’s reserves of gold stood at 96 tons.

6. Lebanon – $52.38 billion

Lebanon’s long-term foreign currency issuer default rating was recently downgraded by Fitch Ratings to CCC, as the country suffers from one of the heaviest public debt burdens in the world. Ratings agency Standard & Poor’s said that it considered the country’s foreign exchange reserves to be sufficient to service the government’s debt for the time being.

7. Egypt – $41.84 billion

Egypt has been undergoing a difficult economic reform program since 2012, following the uprising that toppled former president Hosni Mubarak in January 2011. In 2016, Egypt’s central bank decided to stop running down its foreign currency reserves to prop up the Egyptian pound’s value.

8. Kuwait – $40.28 billion

According to a statement, Kuwait’s reserves are made up of cash, gold, and currency and deposits – excluding external assets of the Public Investment Authority.

9. Qatar – $30.36 billion

Qatar’s central bank began increasing its share of foreign treasuries in 2017, seeing a doubling in value of these holdings throughout 2018.

10. Morocco – $24.46 billion

In the Moroccan central bank’s annual report, the institution said that its international reserves were equivalent to just over five months of imports.