2023-06-15 15:04:54
Egyptian President Abdel Fattah El-Sisi’s hints regarding the exclusion of the “devaluation of the Egyptian pound” raised questions regarding the secret of the timing of these statements, while experts reveal to Al-Hurra the significance of these hints, their causes and repercussions for Egypt, which is suffering from a severe economic crisis.
On Wednesday, the Egyptian president hinted that it is unlikely to devalue the currency once more soon, in his statements during a youth conference, and said that such a step would harm national security and citizens.
Al-Sisi said, “We are flexible in it… But when the issue deals with Egypt’s national security and that the Egyptian people are lost… no, no, no, no.”
He added, “I speak seriously.. This issue I say on the air.. When the effect of the exchange rate is on the lives of Egyptians and it may waste them, we do not sit in a place, we do not appreciate.”
He went on to say, “Even if these words contradict with…even if these words contradict with…”, the phrase was not made, but it is a clear reference to Egypt’s commitments with the International Monetary Fund.
Egypt has devalued the pound by regarding 50 percent since February 2022, following the Russian-Ukrainian war prompted foreign investors to withdraw more than $20 billion from the Egyptian treasury market, causing a severe shortage of foreign currency.
Last year, the value of the Egyptian currency declined amid difficult economic conditions, and the price of the dollar is currently regarding 30.90 pounds, compared to 15.6 in 2022.
The official exchange rate remained stable for regarding three months, while the Egyptian currency fell on the black market to regarding 39 pounds to the dollar.
Egypt promised to let supply and demand determine the price of the currency as part of a $3 billion 46-month rescue package it signed with the International Monetary Fund in December.
The fund has yet to start a review scheduled for March of Egypt’s progress in meeting its commitments under the December agreement.
What do Sisi’s statements mean?
Professor of Political Science at Cairo University, Mostafa Kamel El-Sayed, refers to the expression “flexibility”, and says that it applies to Egypt’s position on the terms of the agreement it signed with the International Monetary Fund.
It is dangerous for Cairo to deviate from this agreement, but according to the current situation, Egypt is “slowing down in responding to some of the fund’s conditions, and there are practical difficulties facing the implementation of some of them,” according to his speech to the “Al-Hurra” website.
Al-Sayed, an expert in development policies, refers to “the Monetary Fund’s requirement to let the currency price be determined according to market strength.”
“The position of the Egyptian government is flexible, and therefore Egypt will not immediately move to let the price of the Egyptian pound be determined according to market strength,” he says.
There is no departure from the agreement with the fund, but there is a kind of delay in responding to some of these conditions, according to the political science professor.
For his part, the Egyptian economist, Abdel Nabi Abdel Muttalib, believes that Sisi’s statements are “a message to the International Monetary Fund that Egypt will not acquiesce in conditions that it may deem unfair.”
Speaking to the “Al-Hurra” website, the economist refers to an incident that occurred previously during the era of former Egyptian President Mohamed Hosni Mubarak, when the International Monetary Fund insisted in 1995 on “complete liberalization of the exchange rate of the pound,” and the Egyptian government refused that.
In 1997, the Asian financial crisis, known as the “Asian tiger crisis,” came, and at that time Egypt sent a message to the International Monetary Fund that “its point of view was right,” according to the economist.
Abdel-Muttalib says, “If Egypt had responded at the time to the fund’s demands, the Egyptian economy would have collapsed, as happened with the Asian tiger countries.”
Therefore, he indicates that Egypt requires more time to “study the effects of liberalizing the exchange rate of the pound and selling some government assets.”
The economist explains that “putting government companies on the stock exchange” may not bear fruit in light of the current global conditions characterized by “uncertainty”.
Therefore, the political economy researcher, Abu Bakr El-Deeb, describes the Egyptian president’s statements as “reassuring,” which means “stopping the path of devaluing the Egyptian pound.”
Al-Sisi’s statements indicate “the possibility of postponing the harsh demands of the International Monetary Fund, which harm Egyptian society,” according to his interview with Al-Hurra.
In its agreement with the International Monetary Fund, Egypt pledged to sell billions of dollars worth of state-owned assets over the next four years.
And the Egyptian government announced in April of last year that, in order to support the country’s economy, it seeks to attract investments worth $10 billion in each of the next four years, as part of a program to increase the participation of the private sector in the economy.
The government has not concluded any major sales since the signing of the agreement, and progress in the program to sell government stakes has been slow so far. In addition, Gulf countries such as Saudi Arabia, the UAE and Qatar have tightened the conditions for providing support to Egypt following previously helping Cairo with tens of billions of dollars.
Egypt has not sold any major foreign currency assets since August, and most of those sales went to Saudi Arabia’s Public Investment Fund.
Last month, Egypt sold 10 percent of Telecom Egypt on the Egyptian Stock Exchange in the local currency, and collected 3.75 billion Egyptian pounds, equivalent to $122 million, according to Archyde.com.
Timing secret?
Abu Bakr El-Deeb confirms the improvement of foreign exchange inputs to Egypt, following an increase in the volume of the gross domestic product, an increase in exports and revenues from the tourism sector, the Suez Canal, and direct investments.
He explains that the growth rate of Egyptian exports increased by 53.1 percent during the fiscal year 2021-2022, to record $43.9 billion, and tourism revenues increased by 121.1 percent to reach $10.7 billion.
Suez Canal revenues increased and amounted to regarding $8 billion in the same period, as did foreign direct investment flows, reaching nearly $9 billion, according to the political economy researcher.
For his part, Al-Sayed believes that there is a belief among circles within the Egyptian government that “the coming months will witness more influx of tourists to Egypt, and thus an increase in Egypt’s foreign exchange earnings.”
And the Egyptian Ministry of Tourism and Antiquities revealed that last April, Egypt received 1.35 million foreign tourists, which is a record number for one month in the country’s history.Egyptian today“.
More than 7 million foreign tourists visited Egypt in the first five months of this year, and the country aims to receive 15 million tourists by the end of this year, and from 18 to 20 million tourists during the next year, according to the website.Masrawy“.
El-Sayed points to another dimension, and says that the “program for selling government assets in hard currency” may be successful, which will put Egypt in a better position if it decides to “move to the free float of the Egyptian pound,” according to the political science professor.
Fears of “social repercussions”?
Al-Sayed refers to “the negative effects of the depreciation of the Egyptian pound on the citizen,” as the country relies on importing many basic commodities, primarily wheat and meat.
There are also difficulties related to the difficulty of providing foreign currency to factory owners who need it to “import production requirements,” according to the development policy expert.
Al-Sayed explains that raising the value of foreign currencies once morest the Egyptian pound will lead to “multiplying the problems facing the Egyptian government by importing food commodities or production requirements,” describing the situation as “difficult.”
However, the Egyptian president prefers to “slow down in responding to the terms of the fund for fear of the effects that may befall the overwhelming majority of Egyptians who depend on imported goods,” as El-Sayed explains.
He points out that inflation at that time “will not be limited to foodstuffs and will extend to other commodities,” stressing that the Egyptian government is in a “very difficult situation.”
And last week, it showedCentral Bank of Egypt dataThe annual core inflation rate in Egypt rose to 40.3 percent in May from 38.6 percent in April.
Inflation has soared over the past year, following a series of devaluations of the pound, as well as a prolonged foreign currency shortage and persistent delays in releasing imports.
The data also showed an increase in the core inflation rate of 2.9 percent on a monthly basis in May from 1.7 percent in April.
and showedData of the Central Agency for Public Mobilization and Statistics in EgyptAnnual consumer price inflation in Egyptian cities accelerated to 32.7 percent in May from 30.6 percent in April, higher than analysts’ expectations and close to an all-time high, Archyde.com reported.
On a monthly basis, urban inflation increased to 2.7 percent, compared to 1.7 percent in April.
Therefore, Abd al-Muttalib believes that there are some experienced economists who have become “close to the position of decision-making,” and advised the Egyptian president to “wait in responding to the liberalization of the exchange rate,” because of its negative repercussions on citizens or the future of the economy as a whole.
The Egyptian president wants to tell the citizen that “he feels what he feels and makes every effort so as not to be harmed,” according to Abdel Muttalib.
The economist affirms that Sisi’s speech is a message to international institutions, foremost of which is the International Monetary Fund, that “pressure on peoples in light of these conditions may generate explosions, which neither Egypt nor the international community is willing to bear.”
The international community “is not ready for Egypt to suffer from social problems or shocks,” in light of the unstable conditions in some countries in the region, such as Sudan and Libya, as well as the repercussions of the Russian-Ukrainian war on the world, according to Abdelmutallab.
Al-Deeb agrees with him, stressing that “all proactive reform measures aim to fix the situation of citizens and prevent them from reaching crises of any kind or social unrest.”
Dilemma and “entangled situation”
Al-Sayed criticizes “the terms agreed upon with the IMF,” but says that as long as the Egyptian government signed an agreement with it, it must “fulfill the terms of the agreement.”
The professor of political science warns of the repercussions of “failing to adhere to the agreement with the fund,” which will affect “confidence in the Egyptian economy” in international markets, which has already been reflected in the estimates of credit agencies on the future of the Egyptian economy.
He stresses that the Egyptian government concluded the agreement and therefore should not “slow too much in its implementation,” warning of “negative effects on the Egyptian economy.”
He explains that failure to implement commitments with the International Monetary Fund “reduces the confidence of international evaluation institutions and foreign investors in Egypt.”
The Fund attaches great importance to “the implementation of the Egyptian government’s obligations” and sees the danger in “not implementing this,” according to Al-Sayed’s statement.
“Two solutions without a third”.. How can Egypt pay its external financial obligations?
Egypt is suffering from a “foreign currency shortage” crisis, in conjunction with the approaching payment of one billion short and long-term external dues, which has raised concerns regarding “the country’s inability to fulfill its obligations,” while experts reveal to “Al-Hurra” the scenarios for that and the extent of the possibility of defaulting on those dues.
For his part, Abdul Muttalib reveals a new dilemma related to “the agreements supporting the International Monetary Fund agreement.”
The economist refers to the World Bank’s agreement with the Egyptian state for many projects in the field of infrastructure.
He says, “Such agreements will not continue if Egypt’s negotiations with the International Monetary Fund fail or stop.”
He also explains that the dollar flows that come to Egypt in the form of “aid, deposits, or investments from the Gulf countries” are linked to the report that the fund will issue on the initial review of the Egyptian economy.
Are there solutions?
The Egyptian government must take measures “on the ground” to improve the state of the economy, boost confidence in the pound, and reduce the gap of “import and dependence on hard currency,” according to El-Deeb.
He explains that Egypt needs requirements of regarding $90 billion annually in order to purchase the needs of citizens from abroad.
The solution to this dilemma is related to increasing exports, reducing imports, raising the income of the Suez Canal, tourism and investment, as well as remittances from Egyptians abroad to achieve huge dollar resources that enable the country to pay its international obligations and reduce pressure on the pound once morest the dollar, according to the political economy researcher.
He says, “A strategic plan must be put in place to reduce the debt-to-GDP ratio, extend the repayment period, and continue to achieve a primary surplus to enhance the state’s ability to pay its obligations.”
It is necessary to promote economic growth, reduce government spending, and increase taxes on investors, with what is known as progressive taxes, as well as strengthening confidence in business, by unifying laws related to investment, and providing an attractive climate for investors economically, financially, administratively, and legislatively, according to his speech.
He stresses the importance of “focusing on development projects that carry economic benefits and contribute to raising growth rates.”
The political economy researcher calls for paying attention to small, medium and micro enterprises, describing them as the “password” in developing the national economy, achieving social balance, providing job opportunities, reducing poverty and unemployment, and saving the pound from the wave of decline once morest the dollar.
“These projects work to achieve the aspirations of young people, and enable them to face difficult economic conditions, especially since they do not require large capital,” he says.
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