2023-04-17 14:12:00
04:12 PM
Monday, April 17, 2023
I wrote – Manal Al-Masry:
With banks returning to work tomorrow, the market is awaiting the extent of the possibility of an imminent devaluation of the Egyptian pound in a fourth wave of decline once morest the dollar, following the International Monetary Fund confirmed that it is waiting for more flexibility in the exchange rate, amid growing concern from some banking experts regarding the negative consequences of any devaluation that may occur. currency in the presence of other economic alternatives.
The International Monetary Fund is waiting for Egypt to implement more of the wide-ranging reforms it has pledged before conducting the first review of the $3 billion bailout program, as it wants to see the implementation of privatization deals for state assets and real flexibility in the Egyptian currency, according to Bloomberg Agency yesterday, according to people who asked. Anonymity as it is a matter of confidentiality.
The head of the International Monetary Fund’s mission to Egypt, Ivana Vladkova Hollar, said in a statement to the Fund yesterday evening, Sunday: “The Egyptian authorities and the staff of the International Monetary Fund (IMF) held fruitful discussions in preparation for the mission of the first review of the Egyptian reform program supported by the International Monetary Fund (EFF), on the sidelines of the meetings.” Spring for the World Bank and the International Monetary Fund.
HSBC Bank predicted, in a report last month, that the price of the dollar would range between 35 and 40 pounds during the current year.
While dollar futures contracts returned non-deliverable for a period of 12 months – in order to secure the risks of currency fluctuations – to record a new decline for the pound, as the price of the dollar reached above 42 pounds, according to what was published by Archyde.com earlier.
Reducing the pound increases the aches
Mohamed Abdel-Aal, a banking expert, said that another depreciation of the Egyptian pound will increase the burden of economic conditions due to the widening rate of inflation, the increasing shortcomings of the net foreign assets positions of the banking system, the high current balance deficit, and the limited foreign exchange reserves, in addition to the external debt service installments.
He added that any rise in the price of the dollar once morest the pound would be reflected in an increase in the rate of inflation, i.e. an increase in the pace of prices.
Egypt is still suffering from the pressures of a lack of foreign exchange resources following the decline in the price of the pound led to an increase in the dollar by regarding 96% over the course of regarding a year, bringing the average sale in banks from 15.76 pounds on March 21, 2022 to 30.94 pounds in the last bank transactions last Thursday.
Abdel Aal called for the need for flexibility from the International Monetary Fund in Egypt’s implementation of the required economic reforms without tightening the screws in light of the crisis of shortage of dollar resources.
Last December, the Executive Board of the International Monetary Fund approved an agreement with Egypt on the economic reform program in cooperation with the Fund for a period of 46 months, which includes a loan to Egypt worth $3 billion.
Sahar El-Damati, a banking expert, agreed with what Mohamed Abdel-Al said, that the devaluation of the pound will increase the price of commodities, which will reflect on inflation by increasing it.
The annual inflation rate for the entire republic rose last March to 33.9%, compared to 32.9% last February, while the Central Bank recently announced a decline in the annual core inflation rate to 39.5% in March 2023, compared to 40.3% (historic level) in February.
expectations of international organizations
3 international financial institutions agreed, in recent reports, that Egypt’s rapid implementation of the privatization program – that is, the state’s sale of some of the shares owned by it in companies in favor of the private sector – and more flexibility of the exchange rate of the pound contribute to bridging the financing gap in dollars in the short term.
Morgan Stanley said, in a recent report on Egypt entitled The Economy Between (The Hammer and the Anvil), that Egypt has two main keys to its exit from the crisis of lack of foreign exchange liquidity flows in the short term, which are the implementation of a large-scale privatization program and the transition to a permanently flexible exchange rate system. .
Last month, the government announced the offering of state shares in 32 companies for sale to investors, whether by selling to a strategic investor or on the stock exchange, over the course of a year until the end of the first quarter of 2024.
On the other hand, Goldman Sachs International Bank said that the Egyptian authorities need to accelerate the implementation of the pace of reform implementation, as agreed with the International Monetary Fund, to avoid painful choices.
This required move, according to a report by the bank, which Masrawy recently reviewed, includes continuing a more flexible exchange rate policy and advancing sales of state-owned assets.
The bank expects that these reforms will help increase foreign direct investment inflows in the short term, while in the long term they can be supported by investor confidence, improving market access and reducing the trade deficit by encouraging higher export growth.
Credit Suisse International Bank also agreed on the need for Egypt to adopt more flexibility in the exchange rate of the pound once morest the dollar, as well as speed up the implementation of the privatization program.
Workarounds
Sahar El-Damati says that there are unconventional solutions for Egypt to get out of the liquidity shortage crisis in foreign currencies, which contributes to relieving pressure on the pound, and not the need for a new wave of exchange rate liberalization.
“Resorting to Egypt’s obtaining a large loan from one of the friendly countries such as China or from the BRICS Bank may certainly contribute to alleviating the impact of the currency shortage,” according to El-Damaty.
And she called for the necessity of speedy implementation of the state’s strategy in expanding the industry, increasing exports and agricultural areas, in a way that contributes to achieving self-sufficiency and strengthening the strength of the pound once morest the dollar.
Since last month, Egypt has officially become a new member of the New Development Bank established by the BRICS countries (Brazil, Russia, India, China and South Africa), following completing the necessary procedures.
The purpose of the bank’s activities, which was established on the basis of an intergovernmental agreement, is to finance infrastructure projects and sustainable development in the BRICS countries and developing countries.
Mohamed Abdel-Aal believes that keeping the exchange rate of the pound unchanged for two years will contribute to strengthening confidence in the currency, the return of remittances from Egyptians working abroad once more, and the elimination of dollarization (the black market for informal foreign exchange trading), which contributes to building a strong cash reserve and implementing a program Privatization to enhance investor confidence in the pound, according to what he told Masrawy.
“Reducing the exchange rate of the Egyptian pound every 3 months will not achieve any positive results. Rather, we will enter into a vicious cycle of depreciation, and it will not benefit the country,” according to Abdel-Al.
The Central Bank allowed the Egyptian pound to reduce the exchange rate at large rates at once once morest the dollar 3 times over the course of a year in March, October, and last January, in addition to a gradual decrease in small rates, with the aim of obtaining the approval of the International Monetary Fund to finance the economic reform program and bridge the financing gap in the currency.
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