Goldman Sachs Report: Egypt’s Plans to Float the Pound and Needed Foreign Reserves

Investing.com – A recent report issued by the American bank, “Goldman Sachs (NYSE:)”, stated, on Monday, that the flexibility of the exchange rate requires a sufficient amount of liquidity from foreign currencies, indicating that the central bank needs about 5 billion in foreign exchange reserves. So that he can float the pound.

This came during the bank’s visit to Egypt last week, where the bank’s experts met with policy makers, analysts and participants in the local market.

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float pound

Goldman Sachs believes that Egypt has no desire to move to a more flexible exchange rate for the pound against foreign currencies, which is the first pillar of the economic reform program with the International Monetary Fund, in light of the current economic conditions, indicating that Egypt is waiting for the money that will come through State-owned assets sales.

The bank added that any efforts to convert to a flexible exchange rate for the pound against foreign currencies in the absence of foreign exchange inflows could cause a significant rise in foreign exchange rates against the pound, or would not lead to the elimination of the black market for illegal currency trade.

The International Monetary Fund had approved a financing package for Egypt worth $3 billion last December, which will be disbursed in tranches over a period of 46 months. Continued implementation of the economic reform program to bridge the financing gap for the dollar.

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Asset sales

Last February, the Egyptian government announced the sale of shares owned by it in 32 companies, originally as part of a program for government offerings for a period of one year, as it aims to collect about two billion dollars before the end of the current fiscal year from this program.

The American bank said in its report that the Egyptian authorities have a strong preference for asset sales to precede the liberalization of the exchange rate of the Egyptian pound. Asset sales would provide a much needed liquidity buffer in conjunction with a possible depreciation of the pound under a free and flexible exchange rate regime and enable an orderly transition to a single market exchange rate.

Goldman Sachs said in a report titled “Egypt Trip Notes: Amidst High Uncertainty,” there is likely to be some near-term asset sales, but the pace will remain slow given the structural headwinds that still exist.

The report added: “The value of foreign exchange that the Central Bank needs to manage the transition to a flexible exchange rate may correspond to the accumulation of import orders in the Egyptian system, but it is not likely to meet the total needs of Egypt in foreign currencies.”

And the bank continued, “In fact, we have heard estimates from various parties indicating that the volume of import accumulations currently ranges between 15 and 18 billion dollars, and includes arrears denominated in foreign currencies that the authorities have accumulated for various suppliers.”

Goldman Sachs said that assuming that the $5 billion, which he described as the “war fund”, was sufficient to move to a more flexible exchange rate regime, this amount is expected to come from asset sales, which are witnessing remarkable progress during the last period.

The Russian-Ukrainian war led to the exit of 22 billion dollars in indirect foreign investments from Egypt in a short period, which was reflected in the availability of foreign currencies. This led to a sharp drop in the price of the pound, during which it lost about half of its value in the past 15 months, and the price of the dollar rose against the Egyptian currency during this period by about 96%, reaching about 30.94 pounds for sale in banks now, compared to 15.76 pounds on March 20, 2022, before the price moved. the currency.