Experts explain the continued decline of the Egyptian pound against the dollar

CAIRO, Egypt (CNN) — The Egyptian pound’s exchange rate against the dollar continued to fall to 19.03 pounds, 19.14 pounds for buying and 19.14 pounds for selling at the central bank’s close on Wednesday, experts said. This is due to ongoing fallout from the Russian-Ukrainian war crisis and consultations with the International Monetary Fund asking for greater flexibility in the exchange rate.

The Chairman of the Planning and Budgeting Committee of the Egyptian House of Representatives, Dr. Fakhri El-Feki, said that the decline in the exchange rate of the pound against the dollar in the past days is a result of the continuing effects of Russia. -The Ukrainian war crisis has negatively affected the Egyptian economy, leading to an increase in the price of importing basic goods and fuel, and the outflow of indirect foreign investments from Egypt to 20 billion dollars, adding that Egypt did not see an exit. Not only that, hot money came out of all emerging markets, and the Egyptian government said it was trying to deal with these repercussions to reduce their severity.

Egyptian Prime Minister Dr. Mustafa Madbouli said in mid-May that Egypt’s budget for the Russo-Ukrainian war was split between 465 billion pounds ($24.4 billion) and 130 billion. pounds ($6.8 billion) in direct costs and about 335 billion pounds and 1 billion Egyptian pounds ($17.6 billion) in indirect costs.

Al-Fiqi, in an exclusive report to CNN in Arabic, said the consequences of the Russian-Ukrainian war have caused a foreign exchange shortage, which has led to the gradual devaluation of the Egyptian pound, and that the Egyptian government is trying to provide flexibility. Egypt agrees to issue a new loan at an exchange rate in line with IMF requirements.

The Egyptian government is in talks to seek a loan from the International Monetary Fund to finance a fiscal gap after $20 billion worth of indirect foreign investments and $20 billion in international commitments exited in the current fiscal year. Consultations are ongoing between the two sides to reach an agreement at the expert level.

Fakhri El-Feki warned of the risk of complete liberalization of the exchange rate, explaining that lowering the exchange rate of the pound would not positively affect the increase of Egyptian exports in light of the impact of the production process on the import of raw materials. And even in tourism, the depreciation of the pound attracts the lower-income tourism sector. The volume of Egypt’s imports after the Ukrainian crisis rose from $5 billion before the crisis to $8 billion.

The value of Egyptian exports rose to $14 billion in the first quarter of 2022 from $9.7 billion in the same period of 2021, an increase of $4.3 billion and an annual growth rate of 44.3%, according to the data. From the Statistical Commission.

To preserve foreign exchange liquidity, the central bank attempted to restrict imports, replace collection documents with documentary credits, stop imports of certain non-essential goods, and at the same time allow foreign exchange to provide foreign exchange. Import and production requirements of food grains and medicines.

Egypt’s foreign exchange reserves fell to $33.4 billion at the end of June, from $35.5 billion at the end of May, according to central bank data.

El-Feki pointed out the journey of the Egyptian pound against the dollar in the last 6 years, the exchange rate of the pound crossed 3 levels; First, on November 3, 2016, the liberalization of the exchange rate, known in the media as “floating the pound”, from £8.8 to £20, and secondly, the pound gradually recovered in light of the success of the economic reform program, until it stabilized at £15.6 for 4 years. .

In the third stage, the exchange rate of the pound fell to 16 pounds after the global economic crisis as a result of the corona pandemic and the outflow of 18 billion dollars of indirect foreign investments, and then fell again after Egypt. A loan of 15.7 pounds was received from the International Monetary Fund and the administration of Egypt for the consequences of the epidemic. He continued that the exchange rate of the pound entered a new phase, leading to the exit through the Russian-Ukrainian war. Indirect foreign investment will gradually decline until it crosses the £19 level, a five-year low, but not the lowest level the pound has reached in history. The period of the pound in 2016.

Fakri El-Feki is expected to bridge the funding gap by borrowing from the International Monetary Fund and financing from other international institutions in addition to Gulf aid and providing foreign exchange liquidity to importers. It was expected that the International Monetary Fund would agree to lend to Egypt in light of the history and success of the Egyptian government’s finances in fulfilling previous promises.

Banking expert Mohamed Batra said the decline in the pound’s exchange rate against the dollar was a result of the widening gap between Egyptian exports and imports of $40-50 billion, making the decline more likely. Full liberalization of the exchange rate to the International Monetary Fund or more, flexibility to control the balance between supply and demand for the dollar in Egypt.

In exclusive reports to CNN in Arabic, Batra said it was difficult to determine a fair value for the pound’s exchange rate against the dollar in light of other sources of foreign exchange, such as tourism revenue and remittances from workers abroad. , setting a fair price requires a balance between supply and demand for the dollar, but there is still a gap between the two sides.

Mohamed Badra, some traders price the exchange rate of the pound against the dollar at 23 pounds to maintain a larger margin than the official rate to maintain the price and volatility of the pound.