2023-04-22 12:37:00
02:37 PM
Saturday, April 22, 2023
Books – Mustafa Eid:
Standard & Poor’s expected, in a recent report, that the price of the dollar in Egypt would reach 40 pounds at the end of next June, compared to 18.75 pounds at the end of last June.
The agency also expected that the dollar price would rise further during the next fiscal year, to end the year at 42 pounds at the end of June 2024, then rise to 43 pounds at the end of June 2025, and stabilize at the same level until the end of June 2026.
The price of the pound against foreign currencies witnessed a significant decline in the last 13 months, as the dollar rose by about 96% against the pound during the same period, approaching the level of 31 pounds in banks now.
“We expect the Egyptian pound to decline by about 53% by the end of fiscal year 2023, compared to the previous fiscal year, followed by a modest decline in subsequent years,” the agency said.
And she continued, “From our point of view, one of the main components of the sharp devaluation of the currency in recent times has been the hoarding of foreign currency revenues by commercial entities, given the uncertainty about the value of the Egyptian pound.”
“We understand that sectors that generate foreign currency such as tourism were holding onto their dollars, while there was a relatively limited availability of foreign currency in the interbank market,” the agency added.
It stated that to conserve foreign currency, the government had introduced measures to stop capital expenditure (capital expenditure) on projects that had not started yet, and called on budget entities and other government bodies to cut spending in areas such as awards and travel expenses.
Standard & Poor’s said that the major reforms announced by the country in December 2022 could lead to a steady flow of foreign currency if fully implemented.
These reforms, backed by a $3 billion program under the IMF’s Expanded Fund Facility, include fiscal consolidation, the implementation of sufficient conditions to allow a fully flexible exchange rate, and a plan to sell mostly minority stakes in selected state-owned companies.
The Egyptian government had agreed with the International Monetary Fund on a program for economic reform for a period of 46 months, supported by financing from the fund amounting to $ 3 billion in several tranches, and the Executive Board of the Fund approved the program next December.
However, the first review, which was supposed to start in the middle of last month, apparently depends on the government moving towards achieving progress in the program of selling assets to obtain foreign exchange inflows, in addition to continuing to adopt a flexible exchange rate regime, according to recent statements by some fund officials.
The agency said the relatively limited evidence of reform implementation has added pressure on the Egyptian pound, especially given Egypt’s high external financing needs.
And she continued: “In our opinion, the lack of progress raises the risk that multilateral lenders and foreign investors, including the main GCC countries, may delay or not provide Egypt with the agreed funds, with consequent implications for Egypt.” Imports, inflation, interest rates, government debt balance and interest payments.
A “permanent shift to a flexible exchange rate regime to increase resilience to external shocks and rebuild external barriers” is a key component of the IMF programme.
“Currently there is limited daily movement in the official exchange rate. We understand that this is due to limited demand as market participants seem reluctant to buy foreign currencies, while rumors of further devaluations are circulating,” the agency stated.
The agency stated that, in its view, significant progress with regard to the sale of state-owned assets is likely to depend on further clarity by the authorities on exchange rate policy.
She noted that foreign investors may also be concerned about restrictions on the transparency of accounts of state-owned companies and how the operating environment would evolve if the government or military retained competing companies in the same sectors.
“Apart from the long-term benefit of a more flexible exchange rate to the economy, its decline is currently adding to already high inflation,” she said. “Egypt is a highly import-dependent country, and a weaker currency increases import costs.”
The inflation rate reached 32.7% in March, and we expect it to average 23% for fiscal year 2023, and to decline to 18% in fiscal year 2024, according to the agency.
She stated that Egyptian society was able to absorb relatively similar rates of inflation, albeit uncomfortably in 2017, when the country last experienced a sharp currency depreciation. “The government is providing financial support to those most affected by the current inflationary pressures, which reduces the risks of large protests.”
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