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

Cairo, Egypt (CNN)– The exchange rate of the Egyptian pound continued to decline against the dollar to record 19.03 pounds for purchase, and 19.14 pounds for sale in the Central Bank at the close of trading on Wednesday. Experts said that this decline is due to the continuing repercussions of the crisis of the Russian-Ukrainian war, and consultations with The International Monetary Fund, which is asking for more flexibility in the exchange rate.

Dr. Fakhry El-Feki, head of the Planning and Budget Committee in the Egyptian House of Representatives, said that the decline in the exchange rate of the pound against the dollar during the past days comes as a result of the continuing consequences of the Russian-Ukrainian war crisis, which negatively affected the Egyptian economy, as it led to a rise in the cost of importing basic commodities and fuel, and the exit of Indirect foreign investments from Egypt amounted to $20 billion, adding that Egypt did not witness the exit of hot money alone, as it came out of all emerging markets, and stated that the Egyptian government is trying to deal with these repercussions to mitigate their severity.

And Dr. Mostafa Madbouly, the Egyptian Prime Minister, had previously stated, in mid-May, that the estimates of the cost of the Russian-Ukrainian war on Egypt’s budget amounted to 465 billion pounds (24.4 billion dollars), divided between 130 billion pounds (6.8 billion dollars) as a direct cost, and about 335 billion pounds. 1 billion Egyptian pounds ($17.6 billion) is an indirect cost.

Al-Fiqi added, in exclusive statements to CNN in Arabic, that the repercussions of the Russian-Ukrainian war caused a scarcity of foreign exchange, which caused a gradual decrease in the exchange rate of the pound, and the Egyptian government is trying to grant flexibility in the exchange rate in line with the requirements of the International Monetary Fund to agree to grant Egypt a new loan.

The Egyptian government is negotiating to obtain a loan from the International Monetary Fund, to finance the financing gap after the exit of indirect foreign investments worth 20 billion dollars, and another 20 billion international commitments during the current fiscal year, and according to government statements, consultations are continuing to reach an agreement at the level of experts between the two sides. .

Fakhri El-Feki warned of the danger of complete liberalization of the exchange rate, explaining that decreasing the exchange rate of the Egyptian pound will not positively affect the increase in Egyptian exports in light of the impact of the production process on the import of raw materials, and even tourism, the depreciation of the pound will attract a segment of low-income tourism that does not generate high revenues for the state. On the other hand, complete liberalization is causing a surge in prices and an unprecedented increase in inflation, especially since the volume of Egypt’s imports rose after the Ukrainian crisis to 8 billion dollars a month from 5 billion dollars before the crisis, as a result of importers’ hedging by buying products that exceed their needs.

The value of Egyptian exports rose during the first quarter of 2022 to record 14 billion dollars, compared to 9.7 billion dollars during the same period in 2021, with an increase of 4.3 billion dollars, and an annual growth rate of 44.3%, according to data from the Statistics Authority.

Al-Fiqi pointed out that the Central Bank tried to limit imports to preserve foreign exchange liquidity by requiring the issuance of documentary credits instead of collection documents, to stop the import of some non-essential goods, while allowing foreign exchange to be provided for the import of grains and medicines as well as production requirements.

Egypt’s foreign exchange reserves declined 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 to the Egyptian pound’s journey against the dollar during the last 6 years, as the exchange rate of the pound passed through 3 stages; The first came with the Central Bank’s decision, on November 3, 2016, to liberalize the exchange rate, which was known in the media at the time as “floating the pound”, to decrease from 8.8 pounds to levels of 20 pounds, and the second stage, the pound gradually rebounded in light of the success of the economic reform program until it stabilized At levels of 15.6 pounds for 4 years.

The third stage added, the exchange rate of the pound fell after the global economic crisis as a result of the Corona pandemic and the exit of $ 18 billion in indirect foreign investments, to drop to levels of 16 pounds, and then declined again after Egypt obtained a loan from the International Monetary Fund and Egypt’s management of the repercussions of the pandemic to a level of 15.7 pounds. He continued that the exchange rate of the pound entered a new stage, with the Russian-Ukrainian war that led to the exit of indirect foreign investments to gradually decrease until it crossed the level of 19 pounds, a level not seen during the last 5 years, but it is not the lowest level reached by the pound in history. Where it recorded lower than the current levels during the float period of the pound in 2016.

Fakhri El-Feki expected that the pound exchange rate would stabilize and foreign exchange liquidity would be provided to importers, after closing the financing gap by obtaining a loan from the International Monetary Fund and financing from other international institutions in addition to Gulf aid. He also expected that the IMF would agree to lend to Egypt in light of history. The success of the Egyptian government with the Fund in fulfilling previous commitments.

The banking expert, Mohamed Badra, said that the decline in the exchange rate of the pound against the dollar came as a result of the high gap between Egyptian exports and imports to range between 40-50 billion dollars, and therefore the possibility of a decline to more than that is possible, in addition to the fact that the International Monetary Fund requires complete liberalization of the currency rate or more. Flexibility to limit the balance between supply and demand for the dollar in Egypt.

Badra added, in exclusive statements to CNN in Arabic, that it is difficult to determine a fair value for the exchange rate of the pound against the dollar in light of the presence of other sources of foreign exchange such as tourism revenues and remittances of workers abroad, adding that setting a fair price requires a balance between supply and demand for the dollar, but there are still a gap between the two parties.

Mohamed Badra indicated that some traders price the pound’s exchange rate against the dollar at the level of 23 pounds, in order to maintain a larger margin than the official price to maintain the cost and fluctuation in the pound’s price.

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