The Egyptians are holding their breath, waiting for upcoming scenarios related to the fate of the national currency against the dollar, and with the state of uncertainty that imposes itself on the markets regarding the possibility of a possible movement or a new floatation of the exchange rate of the pound under the weight of the current economic conditions.. What are the most prominent expected scenarios?
While the exchange rate of the pound against the US dollar has officially stabilized in banks since the last move, the price witnessed continuous changes in the parallel market. According to what applications show for black market dealers on social media platforms, the dollar purchase price ranges from 39.25 to 39.50 pounds, while the selling price ranges from 39.70 to 39.90 pounds (according to updated data on Tuesday morning).
This shift came from levels ranging from 37.73 to 38.12 at the beginning of the month, driven by news of the possible devaluation of the Egyptian pound, and after the recent Central Bank’s decision to raise interest rates at the last meeting of the Monetary Policy Committee, by 100 basis points, to reach 19.25 percent, 20.25 percent, and 19.75 percent. , respectively, contrary to previous expectations by installing them.
The Egyptian government is trying to control exchange rates in a flexible manner, to prevent a new devaluation of the currency, especially in light of the consequences of this on living standards. The official price of the dollar is currently below 31 pounds.
But economic analyst Alena Slyusarchuk, in a note on Morgan Stanley, says that the Egyptian government prefers to collect a larger amount of foreign currency before allowing the pound to float, to contain the potential impact on the cost of living and financial accounts.
On the other hand, Goldman Sachs rules out the move to a more flexible exchange rate in Egypt soon, with the shortage of dollar resources, and amid concerns related to the impact of the “flotation” on rising prices and exacerbating inflation rates. He believes that Egypt needs $5 billion in cash reserves to be able to float.
Before the “float”…necessary measures
For his part, the head of the research sector at Prime, Amr Al-Alfi, says in exclusive statements to “Economy Sky News Arabia” that before devaluing the currency, there must be large dollar liquidity through which the central bank can control the market and prevent speculation and bets against the pound. Accordingly, it reduces the effect of flotation if it occurs without the availability of that liquidity.
And he refers to the current incentives and procedures for providing dollar liquidity to enter the banking system, including the dollar certificates that were announced recently, as well as in exchange for settling the recruitment position of Egyptians abroad, and the insurance pension document in dollars, along with the government offerings program, “explaining that” the next deal (Regarding government offerings) will not take place before next October,” in light of the current data.
“Horizon Financial”: plans to devalue the Egyptian pound are currently deferred
He adds, “Now, the dollar revenue has not increased in a significant way that enables the currency to be devalued freely, because if the currency is devalued without proper dollar liquidity, the price will rise in the parallel market (and the same previous results will be repeated).”
Accordingly, Al-Alfi believes that the devaluation of the national currency will not happen before the end of the year, according to the above, pending a large dollar proceeds in the market.
towards sustainable solutions
However, in his interview with Sky News Arabia, he stresses that the aforementioned solutions are short-term solutions, while reaching a sustainable solution to the dollar crisis in Egypt requires several measures. Among them is opening the field of foreign investment to reach the Egyptian market more, and expanding the government offering program, not only in terms of the size and number of companies, but also with regard to the speed of implementing the offerings.
Here, he refers to the improvement in the revenues of the tourism sector, as well as the revenues of the Suez Canal, among the main sources of foreign exchange in Egypt.
He also points to another resource, which is the remittances of Egyptians abroad, and says that these remittances can return to the banking system and remittances rise again, if there is a stable price for the currency and a state of confidence is established.
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Suez Canal revenues amounted to $9.4 billion in the fiscal year 2022-2023, compared to seven billion in the previous fiscal year. Revenues from the tourism sector increased in 2022, by 37 percent, to about $12.2 billion, compared to $8.9 billion in 2021. Remittances from Egyptians working abroad declined by about 26 percent between July 2022 and March 2023, at a time when the country was suffering from a shortage. Hard currency.
The Egyptian President, Abdel Fattah El-Sisi, in a speech during the National Youth Conference, last June, hinted at refusing to conduct a new devaluation of the currency. He said, “We enjoy the flexibility of the exchange rate, but when it comes to Egypt’s national security and the Egyptian people get lost in it, no, when the exchange rate affects the lives of Egyptians and may waste them, we don’t sit (we don’t sit) in our place.”
alternative paths
In the context, the head of the Capital Center for Economic Studies and Research, Dr. Khaled Al-Shafei, says in exclusive statements to the “Sky News Arabia Economy” website, that these statements reflect government directions, indicating that “any talk about devaluing the currency may not be accurate after I mentioned The political leadership in Egypt does that (referring to the statements of the Egyptian president).
He added, “The Egyptian economy suffers from some problems and negative effects, especially as a result of the repercussions of the war in Ukraine and its negative effects on the economy, which poses many challenges that must be solved without resorting to floating the pound by finding other solutions,” considering that devaluation would Remarkably affecting prices, among the social and economic effects.
The head of the Capital Center for Economic Studies and Research believes that the alternative options for “floating” are multiple. While the problem is the scarcity of the dollar, it is possible to work on developing the main resources of hard currency, primarily the Suez Canal, exports, direct investments, tourism and even remittances of Egyptians abroad, referring to incentives. Related issues, including dollar certificates, all of which support the pumping of dollars into the market, in a way that helps solve the crisis without affecting the citizen, especially since “the devaluation of the currency by one or two pounds may push inflation rates to more than 100 percent.”
He concludes his speech by pointing out that while the regulators can now control the movement of prices in the market, if a new devaluation occurs, these agencies may not be able to control the markets and prices, within the possible social and economic consequences.
In previous statements to “Sky News Arabia”, last week, the Vice Chairman of the Board of Directors of Horizon Financial, Mutasim Al-Shahedi, ruled out the possibility of devaluing the pound at the present time due to high inflation. On the other hand, a member of the Board of Directors of Elite Financial Consulting, Mohamed Kamal, stated that “a new flotation of the Egyptian pound this year is expected.”
Liquidity crisis
Egypt is facing a dollar liquidity crisis, especially after the war in Ukraine and its wide-ranging repercussions. Since November 2016, and with the approval of the International Fund to grant Egypt a loan of $12 billion at the time, the value of the Egyptian currency has been devalued four times, as follows:
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The first time, in November 2016, it jumped from 8 pounds to the dollar to 19 pounds, after which it settled at 16 pounds against the dollar. In March 2022, after the war in Ukraine, the value of the pound was devalued, from levels in the range of 16 pounds against the dollar to 18 pounds. The third cut was last October, with reliance on a flexible exchange rate for the pound, which reached between 22 and 24 pounds per dollar, and after announcing the approval of the Monetary Fund to grant Cairo a new loan. In the first month of this year, the currency was devalued to below 31 pounds against the dollar.
At the end of last year, the International Monetary Fund approved a 46-month program for Egypt, worth three billion dollars, with two reviews annually, until mid-September 2026, with a total of 8 reviews.
The Egyptian government has drawn up a plan to increase dollar revenues by about $70 billion over the next three years, to reach $191 billion by 2026 (between commodity exports, tourism revenues, remittances from Egyptians abroad, and foreign direct investment, in addition to the revenues of the Suez Canal, as well as outsourcing services). .
National security
In addition, the banking expert, Ramzi Al-Jaram, indicates, in exclusive statements to the “Sky News Arabia Economy” website, that the devaluation of the currency is a basic requirement within the requirements of the International Monetary Fund, and a group of parties that link the completion of acquisitions of Egyptian companies – within the offerings program. government – to buy these companies at a lower price, by depreciating the pound.
He explains that the Egyptian state has adopted a number of options over the past periods as an alternative to devaluing the currency, especially with the Egyptian president’s assertion that the issue is related to “national security” and given any potential negative repercussions of the flotation on citizens.
The banking expert adds: “Over a year and a half, since the outbreak of the war in Ukraine, financial and monetary policy makers in Egypt took a set of measures, including floating the pound and raising interest rates, but these mechanisms did not bear the desired fruits, given that the interest rate hike did not succeed. significantly in attracting hot money or foreign investments in government debt instruments, just as the flotation did not succeed in controlling the value of the currency and controlling the parallel market.
Consequently, the state resorted to other alternatives, represented by issuing dollar certificates, for example, and other related matters, as well as offering vital projects to foreign investors, in order not to resort to flotation, because of its potential disastrous consequences for citizens.
Central Bank of Egypt data shows that the deficit in net foreign assets increased by 82.1 billion pounds ($2.66 billion) in June from the previous month, bringing net foreign assets to minus 837.3 billion pounds ($27.1 billion). The International Monetary Fund said in December that Egypt is financing its current account deficit by drawing on net foreign assets.
While the bank’s latest data showed an increase in foreign exchange reserves to about $34.878 billion at the end of last July, compared to $34.806 billion at the end of last June.
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