Egypt’s currency steadied just under 49.5 to the dollar after the central bank’s announcement of a shift to a more flexible exchange rate. This move allowed the currency to plunge as Egypt secured an expanded $8 billion International Monetary Fund (IMF) program. Prior to the de-facto devaluation, the central bank had maintained the currency at just under 31 pounds to the dollar for about a year, implementing a steep interest rate hike.
The new flexible exchange rate, a long-standing demand from the IMF, is seen as crucial for restoring investor confidence in an economy grappling with a foreign currency shortage for the past two years. Improved sentiment was evident as foreign investors resumed purchases of Egyptian treasury bills after a prolonged absence.
The shortage of foreign currency has adversely affected local business activity, leading to port backlogs and delays in government payments for commodities such as wheat. Prime Minister Mostafa Madbouly assured that Egypt was planning significant deals to ensure liquidity and would collaborate with merchants to stabilize prices while prioritizing foreign currency access for basic commodity importers.
Finance Minister Mohamed Maait announced Egypt’s expectation of a total of $20 billion from multilateral partners, including the IMF, the World Bank, and the European Union. The government is committed to a program involving the sale of state assets and encouragement of private sector investment.
Despite a surge in Egypt’s international bonds on Wednesday, prices declined on Thursday. The 2033 note was down 1.62 cents on the dollar at 81.81 cents. Egypt’s sovereign bond prices were trading at levels seen in early March.
Central bank Governor Hassan Abdalla described the black market trading as a “disease” reflecting a lack of trust in the financial system. He emphasized the central bank’s ability to intervene if excess volatility occurs.
The IMF added $5 billion to its existing $3 billion loan program with Egypt, aiming for a sustainable and unified exchange rate determined by the market. Egypt has committed to structural reforms to stabilize prices, manage debt, and encourage private-sector growth.
The Egyptian interest rates, which witnessed a 600 basis point hike, are expected to be on a “downward track,” according to Abdalla. The government signed an investment deal with the Emirati sovereign fund ADQ two weeks ago, including a $24 billion payment for the development of a prime Mediterranean coastline stretch.
Since early 2022, the Egyptian pound has lost more than two-thirds of its value against the dollar due to staggered devaluations. Suez Canal revenues dropped by more than 50%, and remittances from Egyptians working abroad slowed last year. Prime Minister Madbouly announced an “iron fist” approach against traders channeling remittances outside the banking system.