Arab countries like other developing countries have embarked on financial sector reforms since the early 1990s. The purpose of this study is to discuss and shed some light on the Arab countries’ financial sector institutional reform and their implications for economic development. The findings of the study show the following:
the Arab financial sector reform experience demonstrated that institutions have a vital role and can positively influence the process of Arab financial sector liberalization
strong and effective institutional reforms are very important ingredients for the success of financial sector reforms
the implementation of financial reforms has already caused major improvements in monetary and credit aggregates in many Arab banking sectors
there appears to be plenty of room for even more improvements over the next few years
Moreover, for Arab countries in their early phases of financial reforms such as Syria, Algeria and Yemen, the scope for institutional and structural improvements is even greater. Financial reform in the Arab countries has definitely had a noticeable impact on the cost of intermediation as manifested by real interest rates and gross interest margins. However, there is room for even more improvements over the next several years as competition enhancing measures and administrative cost reduction interventions are further adopted. Moreover, enhancing competition measures and the removal of administrative restrictions are essential for the development of efficient and modern Arab financial sector. The sustained efforts by many Arab countries in this regard is proving to be necessary especially since the experience of the last decade suggested that such policies tend to take a long time before they become effective in the market place.