Image source: AFP
Comment on the photo,
Economic analysts say that the floating of the Egyptian pound has already occurred on the ground, regardless of its official announcement
Article information
- Author, Hisham Abdel Latif
- Role, BBC – Cairo
- 8 February 2024, 20:11 GMT
Last updated 3 hours ago
For more than two years, the problem of “Hamad,” a pseudonym for the owner of an import company in Egypt, was to obtain from banks the dollars necessary to import his goods from abroad.
Banks set an official exchange rate for the dollar against the pound, which is currently approximately 31 pounds to the dollar and has been stable for nearly a year. However, when dollars are requested from the bank according to this price, the response is the lack of hard currency, according to Hammad.
Egypt has been suffering from a scarcity of foreign currencies for about two years, and the difference between the price of the dollar in banks and the parallel market may reach double.
Sudden transformation
Hammad told the BBC that throughout this period he was forced to resort to the parallel or black market to obtain the dollars needed to run his company’s business, but at the same time he explained, “Every time has its own circumstances. Sometimes the bank would accept the dollars I saved from the black market and sometimes it would refuse, and I was forced to barter.” One of those who has dollars in the bank and I get them from him at the official rate in the bank and pay him the difference equivalent to the black market rate outside the bank.”
But a sudden shift occurred on Wednesday when Hammad was surprised that the management of the bank he was dealing with told him that “he could make a deposit in exchange for opening the necessary documentary credit to import his goods in Egyptian pounds, and the bank would provide him with the necessary dollars, but did not specify the price and he was told to leave the matter to his time,” according to Hammad.
Hammad explains that he has already deposited more than 150 million Egyptian pounds in the bank in preparation for opening documentary credits to import his goods, and is waiting for the bank management to notify him of providing the dollar at a price that he does not yet know.
Protection or float?
Image source: Getty Images
Comment on the photo,
Commodity prices are witnessing record and unprecedented increases in Egypt, especially food commodities
This shift, which Hammad was surprised by, coincided with a package of social protection decisions announced by Egyptian President Abdel Fattah El-Sisi on Thursday, including raising the minimum wage by 50%, to reach 6 thousand pounds per month, and increasing the wages of workers in the state and economic bodies, with a minimum ranging from 1,000 to 1,200 pounds per month, depending on job grade, starting next month.
Sisi’s decisions will cost the state budget about 180 billion pounds, and they are unprecedented decisions in the percentage increases added to wages, pensions, and protection programs, which prompted some observers to point out that these decisions may be a prelude to the complete floating of the pound, which the IMF insists on in order to reach the real exchange rate against the dollar. .
The International Monetary Fund mission announced early this month the end of discussions with the Egyptian government for the economic reform program supported by the Fund in the country.
Without disclosing what was agreed upon between the two parties, the IMF mission merely said that it had achieved progress, which it described as excellent, in the discussions on the comprehensive policy package necessary to reach an agreement at the expert level.
The mission also explained that the Egyptian authorities “expressed their strong commitment to immediate action on all important aspects of the economic reform program.”
Liberalizing the exchange rate of the Egyptian pound against foreign currencies is considered one of the most important conditions of the International Monetary Fund for Egypt, as media reports spread about increasing the value of the loan from $3 billion to $6 billion.
At the beginning of last week, the Egyptian media reported that the price of the dollar on the black market had declined significantly, as it fell from about 73 pounds to about 55 pounds, before rising again to about 65 pounds per dollar.
This came despite the Central Bank’s decision to raise the interest rate by 2% on February 1st.
It coincided with many leaks and talk in the Egyptian media about the imminent pumping of billions of dollars into Egyptian banks to implement a huge project in the Ras al-Hikma area in Matrouh Governorate on the northern coast, which was later confirmed by the head of the Egyptian Investment Authority.
Unreal price
One of the intermediaries who works as a link between dollar traders on the black market and those wishing to buy or sell hard currency told the BBC, “Everything that was said about the collapse or decline of the price of the dollar is just news published by the Egyptian media only, but it does not reflect reality.”
The broker confirmed, “For a week, traders have stopped selling the dollar, and they may buy timidly, but they will never accept selling the dollar at the declining prices published in the media, because they originally bought it at high prices.”
He stressed that the decline becomes real when “he asks for dollars from merchants and they give him them, but the situation on the black market has become like what happens in banks when they announce an official price for the dollar against the pound, but when you ask for dollars from the banks and do not find them, it is a pricing for something that is not available.”
Expected devaluation of the pound
Image source: Getty Images
Comment on the photo,
This economic crisis coincides with the beginning of a new presidential term for President Abdel Fattah El-Sisi
Economist Muhammad Al-Bahwashi told the BBC, “It is natural for the price of the dollar in the market to witness tremors like the one that occurred last week. The reasons for the rise in the price of the dollar on the black market are unrealistic and illogical, and therefore its decline is also for illogical reasons.”
He explained that the rise in the price of the dollar “happened and is happening, as a result of currency traders withholding it to speculate with it, as well as the tendency of a large group of people to dollarize, that is, converting their savings into dollars to preserve its value and treating the dollar as a commodity and not as an exchange currency.”
He noted that “the decline in the price of the dollar in recent days may have been caused by small speculators among the general public who feared loss, so they rushed to get rid of the dollar, which resulted in an increase in its supply. However, the matter met with resistance from major traders who are still spreading rumors that the dollar is capable of… “It is able to withstand and is able to rise again, and they actually stopped selling it, which pushed it to rise again.”
Regarding whether the package of social protection decisions announced by Sisi paves the way for the full floatation of the pound, Al-Bahwashi said: “Apart from any explanations, the package came at its time, and is worth 180 billion pounds, or about 10% of the state’s general budget revenues.”
He added, “This package, without controlling the prices and availability of goods, will in itself represent a disaster and lead to a significant doubling of inflation as a result of the increase in people’s money supply and the shortage of goods. This has a greater impact than any float, taking into account that the price of the dollar in banks is unrealistic and is expected.” We will also witness a greater devaluation of the pound in the coming period.”
Regarding the banks’ request from importers to exchange the Egyptian currency in exchange for managing their requests for the dollar, Al-Bahwashi said: “This is the most important step in the right direction, and it is the one that will completely eliminate the black market, because the importers are the fuel of the black market and they are the ones who activate it with their requests for the dollar, and if the dollar is available to them.” In banks, even if at a higher price than the current official price, this will eliminate the black market.”
He concluded, “The provision of the dollar by banks is also of great importance, as it facilitates the activity of commercial companies and the import of goods, and this leads to reducing the price of goods at the same time. That is, the matter is a double-edged sword, eliminating the black market for the dollar and curbing inflation.”
2024-02-08 20:15:32
#Floating #Egypt #approaching #sudden #change #management #dollar #banks #BBC #News #Arabic
