2024-03-06 13:44:51
Egypt raised its key rate to a record 27.25% on Wednesday, causing the pound to fall by more than a third of its value once morest the dollar, in an attempt to curb inflation and the worst economic crisis in his history.
Cairo, heavily in debt, has already carried out a 50% devaluation in recent months, while it negotiates new credits with the International Monetary Fund (IMF) which makes the floating of the pound a condition for its aid.
“The unification of the exchange rate is crucial because it helps eliminate foreign exchange arrears by reducing the gap between the official exchange rate and that of the black market,” said the statement issued by the Central Bank at the end of the meeting of its Monetary Policy Committee.
At 1:30 p.m. (11:00 GMT), 50.6 Egyptian pounds were exchanged for one dollar. Against 31 when the banks opened.
It is immediately impossible to know whether Cairo devalues its currency or adopts a floating exchange rate.
Agreement with the IMF imminent
The IMF granted a three billion dollar loan to Egypt at the end of 2022, but loan tranches and program reviews have been repeatedly postponed until Cairo moves forward on demanded economic reforms, led by a “fully flexible exchange rate”.
On Wednesday, the Central Bank insisted that it would continue to fight inflation, including “by allowing the exchange rate to be determined by market forces.”
Extra news television, close to the intelligence services, affirms that an agreement with the IMF “should be reached during the day”, citing a “senior official”. And a Central Bank press conference is planned for the end of the day.
As inflation rose to nearly 40% in recent months, the black market reached a record of 70 pounds to the dollar. It then fell sharply back to around the new official rate with the injection at the end of February by the United Arab Emirates of 35 billion in investments and deposits into the Egyptian economy.
Crushed by its foreign debt – nearly 165 billion dollars – the government is counting on these foreign investments to try to resolve its currency crisis.
Since taking power in 2013, President Abdel Fattah al-Sisi has said he wants to make “development” his priority, even if it means tripling the national debt in the meantime.
Additional reasons to worry
Economists denounce its megaprojects (new cities including the new capital, high-speed trains, bridges and roads) which, according to them, have only siphoned off state coffers without creating new sources of revenue.
Egypt is currently the second country most at risk of defaulting on its debt, just behind war-torn Ukraine, and experts identify additional reasons for concern.
Foreign currency earnings from tourism have been declining for years, following Covid and the war in Ukraine. Egypt is now suffering from the war in the neighboring Gaza Strip.
Attacks by Yemen’s Houthi rebels in the Red Sea and Gulf of Aden have reduced dollar revenues from the Suez Canal, a crucial passage for global trade, “by 40 to 50%” since the start of the year .
And, worse still, remittances from Egyptian workers abroad, far ahead of revenues from tourism and the Suez Canal, fell by a third in the first quarter of 2023/2024.
Two thirds of Egypt’s 106 million people live below or just above the poverty line, while inflation now stands at 35%.
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