Egypt’s pound has fallen to its weakest level against the US dollar since a significant devaluation in March, reaching approximately 49.8 EGP per USD, Bloomberg reports.
The decline is attributed to a broader sell-off in emerging markets and increased local demand for dollars, placing further pressure on the already struggling Egyptian economy.
The depreciation comes as Egypt and the International Monetary Fund (IMF) continue negotiations on the next review of an $8 billion loan package. While the IMF acknowledged “substantial progress” on Wednesday, further discussions are needed before releasing the next $1.3 billion tranche. Egyptian Prime Minister Mostafa Madbouly expressed optimism, stating that discussions in Cairo were “positive” and expecting the review’s completion within two days.
The IMF’s statement reiterated the central bank’s commitment to a flexible exchange rate. Before March’s near-40% devaluation, the pound was artificially overvalued, hindering foreign investment. Since May, the pound has lost nearly 5% against the dollar, mirroring trends in other emerging markets.
The IMF urged Egypt to accelerate asset sales from state-controlled enterprises and implement further economic reforms to reduce the government’s footprint. Specific recommendations include reducing tax exemptions, particularly on value-added tax (VAT), to bolster government revenue and strengthening the social safety net as fuel and food subsidies are reduced.
March’s devaluation, coupled with a significant interest rate hike to curb inflation (currently around 36%), helped Egypt secure a doubled IMF loan deal. This financing complements a larger international bailout effort, including a substantial $35 billion investment from the United Arab Emirates.
The central bank’s Monetary Policy Committee is scheduled to meet on Thursday, with most economists predicting a hold on the key interest rate at 27.25%. Interest rate cuts are not expected until around March.
Goldman Sachs Group Inc.’s Middle East and North Africa economist, Farouk Soussa, attributes the recent pound’s fall partly to the central bank’s easing of foreign exchange restrictions for businesses. Since late October, banks have been able to provide dollars more freely, removing previous central bank approval requirements for sectors like vehicle and furniture importers. Soussa also cites reduced foreign demand for the pound due to global market factors.
