2023-06-03 14:50:49
CairoThe reports of international financial institutions and global banks are attracting the value of the Egyptian pound, which recorded its worst performance against the US dollar since the November 2016 flotation and then the March 2023 flotation, which was followed by more than one devaluation of the local currency, which reinforced speculation about the continuation of the series of decline.
Evaluating the Egyptian pound and determining its real value has become the main concern of the Egyptian government during the coming period, according to previous statements by Prime Minister Mostafa Madbouly, following international reports about downgrading Egypt’s credit rating last month, for the first time since 2013.
The latest of these reports was a report issued by the Swiss international bank “Credit Suisse”, which presented a negative vision of the future performance of the pound, and expected it to fall again by up to 25% from the current price on the black market, due to the lack of tangible progress in the economic reform program, Especially with regard to the government offering program.
The Swiss bank expected that the exchange rate of the pound against the dollar within 3 months would reach between 45 and 50 pounds per dollar, and the pound’s performance may improve during the next 12 months, to reach 33 or 34 pounds per dollar, provided that the Egyptian government carries out serious economic reforms.
These reforms are summarized in adopting a real flexible exchange rate for the Egyptian pound against foreign currencies, and moving forward with plans to offer stakes in 32 state-owned companies to build a strong cash reserve and bridge the gap between the official and parallel market.
The Egyptian pound lost more than 50% of its value according to official prices, and more than 75% according to the black market. It reached 30.9 pounds per dollar in local banks, compared to 15.70 pounds before the Russian-Ukrainian war, and about 40 pounds in the parallel market.
The average of the three reductions that took place during the past year was 15% each time, which means that the move may be within that percentage with a margin of 5%, up or down, and the price of the dollar may officially range between 34 and 37 pounds.
“deterioration of the pound”
Professor of Finance and Investment at Cairo University Hassan Al-Sadi believes that the demands of international financial institutions or their expectations regarding the future of the Egyptian pound are consistent with the demands of the International Monetary Fund to liberalize the exchange rate, according to the value of the pound in the unofficial market, and this is wrong, because this market does not reflect the value of the pound, especially The source of this money is unknown, according to his opinion.
Speaking to Al-Jazeera Net, he considered that such reports aim to harm the Egyptian economy and not only the local currency, because such demands, despite their implementation more than once, had harsh repercussions on the government and the Egyptian citizen without a positive effect.
Al-Sadi stressed that the pound is undervalued, and the state has the right to defend its currency so that the continued depreciation of its value does not lead to price chaos and constantly increasing inflation rates, and then falling into a circle of devaluing the pound and increasing inflation, which is a vicious circle that will increase the pound downward. And inflation soared.
Contrary to the expectations of international financial institutions, the economist believes that the “deterioration of the Egyptian pound” will not lead to an influx of foreign direct investment, because the investor will not be able to calculate the value of his expenses and profits in light of the fluctuation of the exchange rate, and therefore the stability of the exchange rate is the key to attracting investment.
Inflation jumped from the single digits to the dozens digits after the successive devaluations of the pound, and the data of the Central Agency for Public Mobilization and Statistics in Egypt showed that the annual inflation in April reached 30.6%, compared to 32.7% in March.
The pound.. the battle of the next government
In response to such reports issued by international institutions and banks, Egyptian officials’ estimates of the Egyptian pound are less pessimistic, and the Egyptian Prime Minister defended the value of his country’s local currency, stressing that “the Egyptian pound is undervalued.”
He explained during a press conference, in the middle of last month, following the downgrade of Egypt’s credit rating, that “the pound is undervalued as a result of the shortage of hard currency, as this leads to an overestimation of the currency.”
In his vision to solve the crisis of the depreciation of the pound against hard currencies, Madbouly stressed that “injecting investments will provide hard currency for the country, and then there will be no crisis in the dollar, and the pound will begin to be valued at its true value.”
In turn, the Egyptian Minister of Finance, Mohamed Maait, said, in previous televised statements, “The hadith was that the pound was undervalued by 15%, when the dollar was worth about 15.6 pounds, and every time the value of the pound is devalued, these institutions repeat their talk that the pound is undervalued.” of its value and so on and so forth, as if it were a bidding process.”
The effect of devaluing the pound on debt
The Egyptian government blames the change in the exchange rate of the pound against the dollar for the rise in the debt-to-GDP ratio this year to 95% instead of 80%.
This was, accordingly, reflected in the increase in the interest rate on debts to about 37.4% of the upcoming budget expenditures, amounting to about 2.9 trillion pounds, after interest rates rose to 1 trillion and 120 billion pounds (one dollar equals 30.9 pounds).
Economist Ibrahim Nawar considered that “the official depreciation of the pound or its actual decline in the market is an expression of a structural deficit in the economy that is not fixed by debt,” noting that “the depreciation of the pound means an increase in inflation, and the increase in inflation eats up the value of the pound and then it decreases, then the new decrease leads to an increase.” new inflation.
In a post on Facebook, he confirmed that the claim that the crisis in Egypt is due to the Russian war on Ukraine or the Corona pandemic is a false claim.
Nawar believed that delaying serious measures in structural reforms is “a crime against this country that no sane patriot would accept, and the more structural reforms are delayed, the greater the losses and the deterioration of the situation.”
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