The Central Bank of Egypt (CBE) has just carried out another devaluation of the Egyptian Pound against the US dollar. CBE Governor Hisham Ramez, who resigned on Wednesday but will complete his term until 26 November, sought to reassure the market and explain why this measure was taken in an interview with Ahram Hebdo on 11 October on the sidelines of the Fall Meetings of the World Bank and International Monetary Fund (IMF) in Lima.
Some businessmen are pushing for a stronger devaluation of the pound, while other sections of society are pleading for stability to control prices. What do you think?
Egyptian society is divided into two camps, one which is asking for further devaluation and one which is against it. Each camp is defending its interests, but the CBE does not take sides. Its decisions are taken depending on economic conditions and taking inflation into consideration. We have our benchmarks to decide whether or not to devalue. The CBE cannot devalue the pound endlessly to address the demands of businessmen when the consequence of that affects 90 percent of Egyptian society. The price of the dollar has risen by 27.5 percent since I took office, though gradually and the citizen has not felt it. In 2015, the price of the dollar gained 12.7 percent on the pound. The fact that the exchange rate between the dollar and the pound has not yet stabilised does not harm the exports sector as businessmen repeatedly claim. Exports are facing other difficulties such as the loss of vital markets including Syria, Yemen, Libya and Iraq because of political conflicts in these countries.
Will the devaluation drive investors away from Egypt?
The investor is more concerned with dollar availability, and the decisions recently taken by the CBE are a move in this direction. The dollar must reach its fair level against the Egyptian pound to create a climate of confidence for investors. For them, it's the availability of foreign currency that counts, not the price.
Businessmen are strongly criticising the measures taken by the CBE to control the dollar, which they blame for the shortage of dollars in the market. What do you say to that?
The CBE has been the subject of a strong lobbying effort from businessmen. This does not mean that dollars are not available on the market. The business men refuse to admit that the country is facing a shortage of dollars and that it has to set priorities. Each one only has his own interest in mind. Is the CBE secretly hogging dollars? No. Foreign currency reserves are falling, and like every county that is going through a similar economic situation, Egypt has to set its priorities. The CBE does not print dollars, and it must meet the most important demands of the Egyptian economy.
But did the measures taken by the CBE not disrupt industrial activity?
No. According to the balance of payments published on 30 June, you can see that imports have exceeded $60 million in value. The trade deficit is larger but this is not due to a fall in exports as presumed by the businessmen. Petroleum exports have only recorded a 2 percent fall, while imports of services reached $80 million. The CBE therefore does not prevent the influx of dollars, it only allocates them to priority sectors such as raw materials, food products and factories. Meanwhile, businessmen have continued to make profits. Even though raw material prices fell between 30 and 50 percent, the imports bill remains high. For example, the imports bill for car assemblers, who often complain about a dollar shortage, rose to $3.2 billion at the end of June, compared to $1.5 billion a year before, keeping in mind that the price of cars has increased despite the fact that customs duties have fallen and so has the euro against the pound. The equation is therefore incorrect. And that is not all...
What other explanations can you offer?
The anomalies in the balance of trade are another very important point. Is it normal for us to import $400 million worth of apples every year? Is it an important product for the Egyptian citizen? Is it normal for us to import sugar for $2.6 billion, while we have [sugar] factories that are unable to sell their product? Businessmen choose to import products from countries in crisis or low-quality products for their own interest. If we do not control these operations our currency reserves will not be sufficient to cover our basic needs. The CBE does not want to ban these imports, only to control them to prioritise basic needs. Other countries going through similar situations had to adopt austerity measures. The government has refused this option, but to improve the economy it is necessary to set priorities and meet their demands first.
The CBE had set a ceiling for daily and monthly dollar deposits, a policy that sparked the anger of companies because it hinders their activities. What is your opinion on this?
Setting ceiling on deposits is an international trend. It aims first of all to shut down the black market and this policy helps to achieve this. The value of dollars sold to the banks went from $10 million a day to $150 million, but only the priority sectors benefited from these amounts, which did not please the other businesses. Other sectors, with their profits, are able to buy dollars in exchange bureaus at a higher price.
So the CBE will not back down on this policy?
Never. This policy will not be cancelled as long as I am governor.
Your mandate as governor of the CBE will be up at the end of November. Do you intend to serve a second term?
One can serve their country without holding an executive office.
Foreign currency reserves have seen a decline throughout the past two months. Why? And will this trend continue?
The CBE had to repay obligations amounting to $1.3 billion last September. It also had to provide dollars for certain important sectors such as the Suez Canal, power generation and natural gas and petroleum. Aren't these priority sectors for the Egyptian citizen? As for the country's currency reserves, the CBE should not have new repayments to make in the coming period. This year, it had to take care of certain expenditure items in a timely manner. New investments should help to recoup foreign currency and increase the level of reserves.
Has the CBE received the $12 billion promised by Arab Gulf nations at the Sharm El-Sheikh conference last March?
Of these $12 billion, $6 billion have been written on the accounts of the CBE. The other $6 billion of investments promised have not arrived. Gulf investors are still looking for the best investment opportunities.
Are Egypt's chances of obtaining a loan from the International Monetary Fund higher with such a fall in foreign currency reserves?
The Egyptian delegation has not brought up this option in the latest IMF and World Bank meetings in Lima. It is within our right to receive an IMF loan as a founding member of the Fund, but we are waiting for the right time. The government prefers to finish its planned reforms before it takes this step.
The price of the dollar on the black market remains high. How will the CBE handle this situation?
The CBE will not wait to take the necessary steps to control the black market, but we will adopt the right policies at the right time. It is not a difficult mission; we have already done it and we can do it again.
*This interview was first published in Ahram Hebdo