01:18 PM Wednesday, September 13, 2023
Written by Manal Al-Masry:
Fitch Solutions, a global company, expected, through a report within the (BMI) service, that the Central Bank of Egypt would allow the exchange rate of the pound to decline by about 18.6% against the dollar by the end of the current year 2023, bringing the official exchange rates of foreign currencies (in banks) closer to their prices in the parallel market, provided that The government’s ability to attract foreign exchange inflows.
In its report on “Egypt Risks” for the last quarter of 2023, the company expected that the price of the dollar would rise to 38 pounds by the end of this year, compared to an average of 30.96 pounds in banks (approaching its level on the black market, which ranges between 38 and 40 pounds).
Egypt’s return to following a flexible exchange rate in March 2022 led to a sharp decline in the price of the pound, which contributed to the rise in the price of the dollar against it by about 96% within a year, so that its average price in banks jumped from 15.76 pounds on March 20 before last to less than 31. A few pennies now.
“We believe this will happen in September or October when the authorities have raised enough foreign capital to signal to the market that this will be the last devaluation,” the company said, but did not rule out the possibility of postponing the devaluation until after the presidential elections in 2024.
The report by Fitch Solutions, a subsidiary of the Fitch Global Group, linked its expectations of a reduction in the price of the pound against the dollar to the government’s ability to attract sufficient foreign flows through the privatization program.
In July 2023, the government announced the sale of assets worth $1.9 billion from state-owned shares in some companies – included in the IPO program. It is also currently working on a number of other deals, aiming to raise about $5 billion by the end of the current fiscal year, as it recently announced. Selling 30% of the shares of the Eastern Tobacco Company for $625 million.
The company believes, in its report, that these asset sale deals, along with other potentially large deals, such as the Beni Suef power station ($2 billion) and the United Bank ($600 million), will allow the authorities to proceed with the devaluation of the currency in a more manageable manner. .
According to the report, this step complements the International Monetary Fund’s requirements to allow the first review of the US$3 billion Extended Credit Facility (which has been pending since March 2023).
According to what I stated in the report, if the Egyptian government allows full convergence of the official exchange rate with the rate in the parallel market and informs foreign investors that this will be the final adjustment of the currency, more capital will flow into Egypt as foreign exchange risks recede.
A successful devaluation would allow more privatization deals and encourage the return of portfolio investors to the Egyptian debt market, especially with returns reaching record high levels, according to the company.
Egypt will also restore access to international capital markets, as adherence to the IMF program will boost confidence.
Against this background, the company believes in its report that the pound will return to its rise during the next year after these developments to a level lower than what it will reach in the expected reduction, and it said: “We still see the possibility of the pound rising slightly to 36 pounds per dollar in the second half of 2024.” “.
She pointed out that the pound is currently undervalued by 12%, and this percentage will increase after the expected devaluation of the pound.
She continued: “We realize that many structural factors will discourage a significant return of portfolio investors to Egypt, such as the negative net assets of the financial sector, the wide fiscal deficit, high debt levels, and the difficult external environment for emerging markets in general.”
In the same context, the Central Bank has committed to a flexible and permanent exchange rate within the framework of the new International Monetary Fund program, which will allow fluctuations in the exchange rate, whether in the upward or downward direction, according to the company.
She added that while the Central Bank of Egypt allowed further currency movements in January 2023, “we believe that the currency is still under control amid the current shortage in the foreign exchange market.”
In its report, the company believes that removing imbalances in the foreign exchange market by the second half of 2023 will allow the Central Bank of Egypt to move strongly towards a flexible exchange rate.
For a year and a half, banks have been facing increasing pressure with the decline in the flow of foreign exchange after the exit of $22 billion during the past year due to the negative consequences of the Russian-Ukrainian war, which led Egypt to resort to requesting a loan from the International Monetary Fund worth $3 billion, and to devalue the pound several times to implement the reform program. economic, eliminating dollarization.
2023-09-13 10:18:00
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