Even as the coronavirus crisis has changed the economic equation the world over and harmed the Egyptian economy, driving the dollar to appreciate against the pound to reach LE16.25, the US currency took a dip to less than LE16 this week after stabilising at the higher rate since May.
Economic experts believe that the pound has appreciated against the dollar due to the flow of foreign currency into Egypt from foreign investments in debt instruments, loans from the International Monetary Fund (IMF), and bond sales on the international markets, creating an abundance of dollars.
Banking expert Hani Abul-Fotouh said that “foreign investors are once again putting their money into the state’s debt instruments, and this has increased the amount of dollars in the country and caused the US currency to depreciate against the pound.”
Ahmed Hafez, head of research at Renaissance Capital, an investment bank, concurred, referring to press reports that said that foreign investors had bought $3 billion worth of Egyptian treasury bills and bonds in one month.
“Egypt is an attractive market to foreign investors. It is the best emerging market despite the repercussions of the coronavirus pandemic that have negatively affected the economy,” Abul-Fotouh said.
International commentators say the performance of Egyptian markets has been good despite the crisis. Fitch Solutions, affiliated to the international credit-ratings agency Fitch Ratings, expects the Egyptian economy to achieve 2.6 per cent growth during the current fiscal year and 3.6 per cent in the next year.
The pandemic has affected Egypt’s foreign reserves, however, which stood at $36 billion by the end of May, down from $37 billion at the end of April and $40.1 billion at the end of March.
But the country’s foreign reserves had increased to $38.2 billion by the end of June.
A report by Beltone Financial, a brokerage, said last month that the two recent loans Egypt has acquired from the International Monetary Fund (IMF), one for $5.2 billion and another for $2.8 billion, would boost the performance of the Egyptian pound.
The IMF loans would also stabilise the stock market following the rise in the price of the dollar amid the coronavirus crisis, it said.
Although some experts have lauded the depreciation of the dollar against the pound, Hafez said it would be better if the dollar appreciated in order to raise the competitiveness of Egyptian exports.
Renaissance Capital, a brokerage, earlier expected the dollar to reach LE17, amid the loss of foreign currency from tourism, remittances from abroad, and Suez Canal revenues.
But this may change amid the flow of foreign investments into Egyptian debt instruments, Hafez said, pointing out that the Central Bank of Egypt was being flexible with the price of dollars.
Exports are a major source of foreign currency, but according to the latest report from the Central Agency for Public Mobilisation and Statistics (CAPMAS), Egypt’s exports dropped by 18 per cent to $2.24 billion in March.
For Radwa Al-Sweify, head of research at Pharos, an investment bank, “the dollar has depreciated against the pound owing to the slowing demand for imports, which has helped to improve the balance of payments since the coronavirus outbreak.”
CAPMAS said at the end of last month that the deficit in the trade balance had decreased to $2.36 billion in April, down from $4.28 billion during the same month of the previous year, a decrease of 45 per cent.
It said in a report that there had been a drop in the value of imports of 40.1 per cent during the same period, reaching $4.19 billion in April 2020, down from $7 billion, due to the decrease in the prices of some imported commodities, such as iron and steel, prices of which had decreased by 30.1 per cent.
*A version of this article appears in print in the 16 July, 2020 edition of Al-Ahram Weekly under the title: Step back for the dollar