2023-06-02 11:31:00
In light of the stability of the exchange rate of the Egyptian pound against the US dollar in the official market for 3 months, the Egyptian currency begins its fourth month, which is the month of June. It is also stable against foreign currencies, as this month differs from its predecessors for several reasons that we discuss in this report.
The importance of this month lies in the fact that it is full of economic events that may affect the price of the pound, starting with the return of the widening gap between the black and official market, to the Central Egyptian meeting on interest, and also the date of the Monetary Fund review is expected to be announced this month, and finally the end of the year. Finance.
Fund review
The first review of Egypt’s program with the International Monetary Fund was supposed to take place last March to obtain the second tranche of $347 million, but it was delayed due to the completion of some requirements with the Fund.
And the Egyptian Minister of Finance, Mohamed Maait, had expected, in previous statements, that the date for the review would be set before the start of June.
He explained that the review was intended to be held last March, but its delay came due to the circumstances of the month of Ramadan and Eid al-Fitr, and then the Arab Spring meetings began in Washington. Pointing out that the procedures were not delayed, because no final agreement was reached on a specific date for carrying out the first review of the fund.
The minister stressed the government’s ability to pay foreign obligations and debts, noting that Egypt has remittances from Egyptians abroad, the Suez Canal, exports, and tourism that achieve good indicators.
Egypt is currently implementing an extended credit facility program with the fund at a value of $3 billion over 4 years, and obtained the first tranche at a value of $347 million at the end of last year.
In this context, the Egyptian economist, Ali Metwally, expected the date of the first review of the reform program with the International Monetary Fund to be postponed to next September.
Metwally stated that the postponement will come under conditions that have not been met, and it is difficult for Egypt to meet them, because their implementation means a deterioration in the economic situation.
Metwally pointed out that Egypt has implemented several measures to facilitate the initial review and to make it “positive”, and these measures included the use of monetary policy tools to address exchange market pressures and inflation and enhance financial sustainability.
Some experts indicate that the IMF considers floating the currency a prerequisite for conducting the first review, and therefore, will we see a new devaluation of the pound before setting the date for the first review?
The end of the fiscal year
Citigroup predicted, in a report issued a few weeks ago, that the Central Bank of Egypt would not devalue the Egyptian pound, at least until the end of June.
The bank attributed these expectations to the fact that another sharp devaluation of the pound before the end of the Egyptian fiscal year, which ends on June 30, may hinder the government’s goal of a budget deficit of 6.5 percent, and the stability of the country’s debt relative to GDP, according to statements by the strategic analyst at Citi. Group”, for Central and Eastern Europe, the Middle East and Africa, Luis Costa.
Which indicates that the pound may witness a new devaluation with the end of the fiscal year this month.
“The Central Bank of Egypt will likely wait for the good tourism revenues of about $14 billion and its impact on the economy, before deciding on the need for another flotation of the pound,” Costa said.
The markets are also anticipating the entry of large financial inflows from abroad, with the government implementing the offering program it announced to sell some of its assets at no less than two billion dollars.
The gap between the black market and the official market
The black market for the dollar in Egypt has revived again during the past few days, coinciding with the issuance of the reports of the British “Standard Chartered” bank and the Swiss “Credit Suisse” bank.
The black market witnessed confusion and confusion among dealers due to reassuring government decisions and statements, and international reports stating that the pound will not decline in the near future, which led to a decline in the black market to the level of 36 pounds to the dollar.
A recent report issued by “Credit Suisse” bank, this week, expected new declines in the pound during the coming period, as the Swiss bank deepened its negative view of the Egyptian economy, which it announced last February, after it was a neutral view in December 2022.
This comes days after the release of the Standard Chartered Bank report on Thursday of last week, which indicated that Egypt needs to pay about $25 billion annually over the next four years (2024-2027), including $10.3 billion in payments to the International Monetary Fund. and 6.2 billion euros for Eurobonds, during the next two fiscal years. The Bank of England confirmed that the aforementioned financing risks, which Egypt will face in the coming period, would cause concern among investors and credit rating agencies.
As a result of these two reports, the dollar witnessed remarkable movements against the pound in the black market, as the parallel market revived and the dollar rose in it whenever expectations of a fall in the pound were reinforced by reports or statements indicating that the pound was about to float.
Standard Chartered Bank expected in its research note that the Egyptian pound will witness a further decline against the dollar, reaching 38.4 pounds against the dollar, in light of the stability of the official exchange rate of the Egyptian pound at 30.9 pounds per dollar since last March. As these expectations of the pound’s decline towards 38 led to the rise of the dollar in the black market once again, to hover now between levels of 38 and 39 pounds per dollar, after it fell to the level of 36 during the past few days.
On the other hand, Credit Suisse adjusted its target for the dollar exchange rate against the Egyptian pound within 3 months, to between $45 and $50. While he revised his expectations for the price during the 12 months to range between 33 and 34 pounds per dollar, indicating that this price adds a premium between 25 to 30% above the real effective exchange rate, provided that the government succeeds during that period in making progress on reforms.
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