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Country- The Egyptian pound recently reached its lowest level among world currencies in 2023, and it is expected to decline further against the US dollar.
The Egyptian pound continues to collapse against the dollar
The Egyptian pound is currently ranked sixth among the worst-performing currencies in the world since January 1, and it continued its decline, which witnessed the loss of more than half of its value during 2022.
A network report indicatedCNBC CNBCIn February, the headline inflation rate in Egypt reached its highest level in more than 5 years, rising by 31.9% year-on-year, driven by high food prices exacerbated by the war in Ukraine.
The authorities said the Egyptian pound suffered its largest single-day drop on January 4, after the cash-strapped government agreed to a $3 billion deal with the International Monetary Fund in mid-December 2022.
And since the beginning of 2022, the Egyptian pound has lost more than 60% of its value.
The pound is heading downwards
Since the beginning of this year, the Egyptian pound has fallen by nearly 20% against the dollar, with some analysts speculating that the currency may drop further.
According to the report written by “Li Ying Shan,” the Egyptian pound currently ranks sixth among the worst-performing currencies since January 1, continuing its decline, which caused it to lose more than half of its value during 2022.
Today, Wednesday, the Egyptian pound traded in Egyptian banks at about 30.85 pounds per dollar.
The Lebanese pound is in first place
As of the end of March, the Lebanese pound was the most volatile currency since the beginning of the year, depreciating by up to 70%, followed by the Venezuelan bolivar and the Zimbabwean dollar.
Another Middle Eastern currency, the Iranian rial, ranked fifth among the worst currencies.
“These sharp declines are nothing new, as all three Middle Eastern currencies have serious endemic problems,” Steve Hanke, a professor of applied economics at Johns Hopkins University who monitors distressed currencies, told CNBC.
Egypt’s embattled economy
However, the economic woes plaguing the Middle East’s most populous country mean the pound still has further collapse to go, according to experts.
Egypt’s headline inflation rate in February reached its highest level in more than five years rising by 31.9% year-on-year, driven by soaring food prices, exacerbated by the war in Ukraine.
Egypt is the largest importer of wheat, and Ukraine and Russia are among its largest suppliers.
The course of inflation exceeded expectations
Goldman Sachs economist Farouk Sousse indicated, in a research report he published on March 9, that “the path of increasing inflation increases pressure on the Egyptian pound, which has remained relatively stable since the devaluation in early January despite clear indications of a continuing shortage.” Liquidity in foreign currencies.
$3 billion loan
He expects Egypt’s inflation to peak at around 36% in the third quarter, if there are no more cuts.
Last December, the International Monetary Fund approved a $3 billion loan to rescue the ailing Egyptian economy. However, it is contingent on the country’s commitment to economic reform over the next four years, and one of the steps towards that is the adoption of a flexible exchange rate.
Egypt’s fiscal deficit
And in January, the International Monetary Fund also projected that Egypt’s fiscal deficit would be around $17 billion over the next four years. The fiscal gap refers to the amount of foreign exchange a country needs to pay off its debts.
Most recently, on March 30, the Central Bank of Egypt raised key interest rates by 200 basis points in an effort to curb inflation.
indicated in statement The path of basic interest rates depends on expected inflation rates and not on prevailing inflation rates. He also stressed the necessity of restricting monetary policy as a prerequisite for achieving the inflation rates targeted by the Central Bank of Egypt.
Angus Blair, chief executive of the Signet Institute, said Egypt needed to “move forward quickly to make fundamental changes to its economy and the way it is run.”
Earlier this week, the Egyptian President, Abdel Fattah El-Sisi, confirmed that the scarcity of the dollar and the problems of the exchange rate of the pound will become “from history,” without explaining how to end this crisis.
Simon Ballard, of First Abu Dhabi Bank, wrote in a report dated March 29: “It appears that inflation will only rise further in Egypt in the coming months.”
He added that he expected the country’s central bank to “give priority to economic growth at the expense of (stabilizing) the pound” during the current year.