While pressure continues on the Egyptian pound, which is recording new declines against the US dollar in the official exchange market, the economist, Hani Genena, revealed in his interview with Al-Arabiya.net that the pound has been subjected to 3 pressures during the past two decades, prior to every sharp movement in the price of official exchange.
In January 2003, the exchange rate fell from 4.6 pounds to 6 pounds against the US dollar after a gradual weakening from 3.4 pounds to 4.6 pounds during 2001 and 2002. Two years earlier, Egypt suffered a near-depression due to the bursting of a real estate bubble in the late 1990s.
Geneina explained that the important economic lesson at this stage occurred by pure chance, as the aggravation of bad debts in a large number of major banks during this period led to weak growth in liquidity and consequently to a decline in domestic demand, which caused an automatic improvement in the balance of current transactions.
Genena stated that the pressure on net foreign assets was not severe at this stage. From June 2000 to December 2002, that is, before the exchange rate devaluation in January 2003, net foreign assets fell from 6 to 3.8 billion dollars.
As for the second crisis, on November 3, 2016, it was announced that the pound would float against the dollar, and the exchange rate fell from the level of 8.88 pounds to about 13 pounds on the same day.
For the second time, the decline in net foreign assets was a strong precursor to the event. Net foreign assets decreased from about $16 billion in June 2014 to net foreign liabilities equal to $13.7 billion in October 2016.
Finally, in 2022, the exchange rate was reduced by about 18% during last March, and the dollar exchange rate rose from the level of 15.75 pounds to about 18.50 pounds at that time, and pressures continue on the Egyptian pound until now.
For the third time, this exchange rate depreciation is preceded by a sharp decline in net foreign assets. In June 2021, net foreign assets were about $16 billion, declining to net foreign liabilities of $3.3 billion last February.
“Therefore, companies that want to hedge against exchange rate fluctuations, must follow the development of this number on a monthly basis and take precautionary measures in the event of a continuous and sharp decline for more than a month in a row,” according to economist Hani Genena.
Data from the Central Bank of Egypt indicated that net foreign liabilities expanded to nearly $20 billion last August.
Net foreign assets represent the banking system’s assets owed by non-residents, minus liabilities. This includes foreign assets held by the central bank.
Net foreign assets fell to minus 385.9 billion pounds at the end of August from minus 367.8 billion pounds in the previous month. It rose in July by 2.27 billion pounds after a nine-month decline.
In September 2021, before the decline began, the net assets value reached 248 billion pounds. The Russian invasion of Ukraine last February raised more concern among investors and prompted them to exit more of their investments from Egypt.
According to the data of the Central Bank of Egypt, the change in the volume of net foreign assets represents the net transactions of the banking system, including the Central Bank, with the external sector.