A “compulsory path” for Egypt to control the black market dollar
Although devaluing the currency means a decline in the purchasing power of consumers, an increase in prices, and thus inflation rates, and thus is not favored by many economists, and consumers as well, the “bleak” economic situation in Egypt has made traders and consumers believe that it is heading on a “forced path” in the future. Or sooner, because the pricing of everything in the country has become dependent on the black market dollar, which is more than double the price of the dollar in government banks.
“As long as the prices of all goods and products are priced in black market dollars, why is there not an official reduction, until the black market is eliminated, and then the dollar returns to the banks again, and at that time the dollar will be provided to importers to buy their production requirements, thus increasing the supply of products in the market.” “Only then will prices drop,” according to Ihab Ajaybi, a furniture dealer, to Asharq Al-Awsat, who described the current Egyptian economic situation as “bleak,” which put it in “one forced path.”
Egypt is currently discussing completing its financing program with the International Monetary Fund, worth $3 billion, with demands to increase it given the current conditions. Among the fund’s conditions is flexibility in the exchange rate, while curbing inflation rates in the country.
The pound has fallen by more than half against the dollar since March 2022. Despite repeated devaluations of the currency, the price of the dollar is more than 60 Egyptian pounds on the black market, according to currency trading groups, compared to an official rate of 31 pounds.
There is currently a mission from the International Monetary Fund in Cairo, to conduct the first and second reviews, which were delayed, since late last year.
Economists linked the presence of the Fund’s mission to the approaching meeting of the Central Bank of Egypt, next Thursday, to consider interest rates, and some expected an announcement of a sharp reduction in the value of the pound while raising interest rates by about 3 percent, while raising the value of the Fund’s loan to approximately 10 billion dollars.
With the difficulty of predicting what the economic conditions will lead to in Egypt, anticipating the future conditions and expectations of the economy is also becoming more difficult, given the status of the current government, which many are calling for to change it, and to infuse new blood with new ideas into the economy outside the box.
The crisis is taking a dangerous turn
Representative Ahmed Samir, a member of the Economic Committee in the Egyptian Senate, called for changing economic policies in Egypt, through a government change that may contribute to calming the current economic crisis, saying: “The economic situation is currently becoming more difficult due to the impact of all commodity prices by the rise in the dollar.”
Samir told Asharq Al-Awsat: “The crisis in Egypt has reached the point of having two markets for the dollar… The biggest problem is the lack of abundance of the dollar… The problem here is that no investor will come to a country that has two currency prices… and with the absence of new investments, there will be no Production…and thus the crisis worsens.”
For more than two months now, Asharq Al-Awsat has monitored an increase in dealers in the dollar trade on the black market, and producers and manufacturers abandoning their basic work, devoting themselves to trading in the dollar. Some of them attributed this to the current government’s lack of experience, or even its “failure” in managing matters.
Samir believes that the “quick solution” to control the current situation, before it “gets out of control,” is to “increase the loan from the International Monetary Fund and devalue the currency along with the quality of spending of the loan funds, until we obtain a certificate of confidence that we can use to attract new foreign investments that will quickly revive the Egyptian economy.” ». The sustainable solution is to “pay attention to local industry and production.” “This will also attract investments.”
Regarding Egypt obtaining about 3 “certificates of confidence” after each devaluation of its currency, without success, Samir said: “With this, the devaluation may be more motivating and attractive to the foreign investor… and at that time the pressure from the credit rating agencies that lowered Egypt’s rating will end.” And its ability to repay debts.
This January, Moody’s lowered its future outlook for rating Egyptian government issues from stable to negative. This came after it was preceded by Fitch and Standard & Poor’s.
Samir expected that “the value of the loan from the International Monetary Fund will reach 12 billion dollars” from current discussions of between 6 and 8 billion dollars, pointing to the importance of rationalizing “infrastructure projects” at the present time and not expanding unconsidered.
The most likely scenario
For his part, Haitham El Gendy, an economic analyst, explained that “the ideal scenario currently is for the Egyptian authorities to be able to secure large liquidity in foreign exchange, including a loan amounting to at least $10 billion from the International Monetary Fund, and financing from Gulf and Western partners to implement a successful fourth devaluation of the pound.” Eliminates the black market.
Regarding the most likely scenario, Al-Jundi believes, to Asharq Al-Awsat, that “the situation will remain as it is with the continued recovery of the black market, with the state giving priority to paying external debt dues at the expense of imports, with the possibility of exchanging debts for investments with bilateral creditors and repaying international bonds that are not available.” It is possible to delay payment of one of them without a comprehensive restructuring of the debt.”
As for the worst scenario, “it is for the state to default, which is a matter whose chances are increasing after Moody’s decision to lower its future outlook for Egypt’s credit rating, and its indications that external financing may not be sufficient to avoid debt restructuring, especially with all sources of the state’s income being affected by… Foreign exchange, the latest of which is navigation through the Suez Canal.”
El-Gindy pointed out here that raising interest rates “will only be useful in attracting foreign portfolio investors, if the fourth devaluation of the pound is possible.” But it will not contribute significantly to controlling inflation resulting from a lack of supply, rather than an increase in demand.”
central bank
The Capital Economics research institution expects that the Central Bank of Egypt will keep interest rates unchanged at its next meeting, next Thursday, unless a new agreement with the International Monetary Fund is announced.
The annual inflation rate in Egypt slowed to 33.7 percent in December from 34.6 percent last November, according to data issued by the Central Agency for Public Mobilization and Statistics.
HC Securities also expected that the Central Bank would also fix the interest rate at the next meeting.
Heba Mounir, a macroeconomic analyst at HC, said: “We expect the Monetary Policy Committee to maintain overnight deposit and lending rates at its meeting on February 1, in the absence of a change in the official exchange rate,” adding: “We do not rule out raising the interest rate if the official exchange rate changes.”
According to the schedule of meetings of the Monetary Policy Committee of the Central Bank of Egypt, the committee is scheduled to hold about 8 meetings as follows: February 1st – March 28th – May 23rd – July 18th – September 5th – October 17th – November 21st – December 26th.
The Monetary Policy Committee had decided at its last meeting on December 21, 2023, to maintain the overnight deposit and lending rates, and the central bank’s main operation rate, at the level of 19.25 percent, 20.25 percent, and 19.75 percent, respectively. It was also maintained The credit and discount rate is at 19.75 percent.
2024-01-28 17:14:31
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