The US dollar is officially about to hit EGP 10

BY Ibrahim Abuallail
Actuarial Science Senior
@iabuallail

Since the publication of this article on March 13, the Central Bank devalued the Egyptian pound by about 14 percent from EGP 7.83 to EGP 8.85 to the dollar, and injected an emergency sum of $200 million into local financial institutions.

In a televised interview on February 21, Egyptian Central Bank Governor Tarek Amer tried to reassure investors and the Egyptian public by saying that the Bank had no intention to float the Egyptian pound, despite the huge disparity between its official price and that on the black market.

As it officially stands, banks are allowed to sell a dollar at the cost of EGP 7.83. The severe shortage in dollars however, drove the black market price as high as EGP 10, which is the highest price paid for a dollar in EGP in history.

While Amer’s words were meant to be reassuring, he also said floating the pound will eventually happen once the Egyptian currency reserves climb up to around $25 billion, from around $16.5 billion currently.

Such a comment would sink confidence in the Egyptian currency, adding more uncertainty to an already shaky structure of expectations encircling the Egyptian pound.

This alone could potentially increase the dollar price in the black market even more, with less people willing to hold onto a currency that will eventually and officially fall in value.

The Central Bank announced on Tuesday in a press conference, that restrictions on foreign currency deposits and withdrawals, originally $50,000 a month and $10,000 a day, have been officially lifted for individuals.

This decision excluded companies, who the Central Bank announced at the time were allowed to deposit up to $250,000 a month.

The following day, however, the Bank decided to finally lift all deposit and withdrawal restrictions for companies as well.

The Bank also announced the sale of $500,000 to local lenders, in order to inject dollars into the market and ease the pressure on the pound.

This move comes amid complaints from several local and international firms, including international airline companies such as British Airways and Emirates, or other producers such as the Suez Cement company, who are either unable to import necessary production input materials, or repatriate their profits due to the severe shortage of the dollar.

Many of these companies threatened to shut operations or relocate their headquarters from Egypt. Still, however, the move does little to solve the crisis and is rather an unsustainable solution given Egypt’s current foreign currency reserve status.

The foreign currency crisis is definitely multi-layered, and will require shrewd government practices if it is to be solved. Tourism, which was once a main source of foreign currency, has been severely hit by political unrest and the brutal murder of Italian student Giulio Regeni.

Gulf support through deposits to the Egyptian Central Bank is likely to continue decreasing due to the continued fall in Oil prices and therefore fall in Gulf revenues.

Suez Canal revenue also fell due to a decline in world trade. Foreign Direct Investment is almost completely vanished, with a major lack of trust in the Egyptian economy and government policies.

Frequent change of policy and shaky decisions make it difficult for investors to make any assumptions about the future, in a world where economics is built on expectations.

The Egyptian government has a lot to do politically before it will be able to solve the situation economically.