2023-06-16 12:45:00
03:45 PM
Friday, June 16, 2023
I wrote – Manal Al-Masry:
Bankers Masrawy spoke to expected that statements excluding the devaluation of the pound during the coming period would not lead to a halt in cooperation with the International Monetary Fund to support the Egyptian economic reform program, as it understands the difficult economic conditions we are going through.
The Egyptian President, Abdel Fattah El-Sisi, ruled out lowering the currency rate, and said in direct statements during the week, “As you approach the exchange rate, we must pay attention so as not to enter into a crisis beyond imagination, and we enjoy flexibility in the exchange rate, but when the matter is exposed to Egypt’s national security and the Egyptian people get lost in it.” No, when the exchange rate affects the lives of Egyptians and may waste them, we are not sitting in our place.
The International Monetary Fund always links the success of the Egyptian economic reform program, which it supports at a value of $3 billion, to be spent over 46 months, in equal tranches, with Egypt’s commitment to adopting a more flexible exchange rate, which is one of the most important reform prescriptions, as the fund sees it.
Egypt began moving to a flexible exchange rate regime since March 2022 to face the repercussions of the Russian-Ukrainian war on the Egyptian and global economy, which led to the exit of $22 billion in indirect foreign investments in a short period, which was reflected in the availability of foreign currencies, causing a shortage crisis so far. But the exchange rate has stabilized in recent weeks.
Egypt’s transition to a more flexible exchange rate led to a sharp decline in the price of the pound, during which it lost about half of its value in the past 15 months, and the price of the dollar rose against it during this period by about 96%, reaching about 30.94 pounds for sale in banks now, compared to 15.76 pounds on March 20. 2022, before the currency price moves.
Mohamed Abdel-Aal, a banking expert, expected the International Monetary Fund’s continued cooperation with Egypt, explaining that the president’s announcement of certain controls to float the exchange rate of the pound against the dollar came after coordination with the International Monetary Fund and his understanding of the risks of further depreciation of the local currency against the dollar in light of the economic consequences. difficult current.
Abdel Aal explained that the economic reform program supported by the International Monetary Fund will not stop and will remain in place and a return will be made to a more flexible exchange rate, provided there are foreign exchange inflows that enable Egypt to manage the process of floating the pound and avoid the risks of increasing speculation.
The US Goldman Sachs Bank said, in a report on Egypt issued this week, that the Central Bank of Egypt needs about $5 billion in unencumbered foreign exchange reserves in order to be able to manage the transition to a more flexible pound exchange rate through their use.
Goldman Sachs added that assuming that the $5 billion, which he described as the “war fund”, was sufficient to move to a more flexible exchange rate regime, “where does this come from? The answer on the ground is asset sales, the second pillar of the IMF program.” But it goes by very slowly.”
Abdel Aal, a banking expert, added that the International Monetary Fund understands the difficult economic conditions that Egypt is currently going through, affected by the negative consequences of the Russian-Ukrainian war and the consequences of any new depreciation of the pound for the fourth time on the high inflation rate and public debt in light of the slow inflows of foreign direct investment to buy shares of owned assets. to the state to which the fund is entrusted.
The Fund had expected the EFF to encourage the availability of approximately $14 billion in additional financing for Egypt from its international and regional partners, including new financing from GCC countries and other partners through ongoing sales of state-owned assets and traditional financing channels from bilateral creditors. and multilateral.
Abdel Aal stressed the continuation of cooperation with the International Monetary Fund at the level of the state’s exit from shares owned by it in favor of the private sector and reducing government expenditures, with reservations about a new devaluation of the pound due to its negative consequences.
Spinning in a vicious circle
Sahar El-Damaty, former vice president of Banque Misr, said that the continued cooperation of the International Monetary Fund in financing the economic reform program after announcing the absence of a new devaluation of the Egyptian pound is difficult to determine now and depends on the ongoing negotiations between them.
She explained that she had always called for not responding to the demands of devaluing the pound again, as it did not bear any fruit for Egypt. Rather, after the International Monetary Fund signed an agreement to provide a loan to Egypt, Egypt’s credit rating was lowered by international rating institutions, which raised the volume of challenges and put domestic investment below the line.
Two months after the fund’s loan, Moody’s lowered Egypt’s credit rating for the first time in ten years from B2 to B3, and in return modified its outlook for the Egyptian economy to stable from negative, due to the decline in Egypt’s foreign exchange reserves and its ability to absorb external shocks at a time when it is subject to The economy for a structural change towards private sector-led growth and a flexible exchange rate regime.
And Sahar Al-Damati added that any new decrease in the exchange rate will lead to the collapse of the economic conditions due to the high rate of inflation and the increase in the burdens on citizens due to the high prices and entering into a vicious circle that is difficult to get out of.
Last February, the government announced the sale of state shares in 32 companies, including 3 banks, to investors, with the aim of attracting dollar resources to bridge the dollar financing gap.
And Goldman Sachs had said that any efforts to convert to a flexible exchange rate for the pound against foreign currencies in the absence of foreign exchange inflows could cause a significant rise in foreign exchange rates against the pound, or would not lead to the elimination of the black market for illegal currency trade.
The bank confirmed that the experience of the three devaluations of the exchange rate over the past 16 months proved this.
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