Egyptian pounds (Photo: AP)
The Egyptian pound strengthened on Sunday to its highest exchange rate in over two years, boosted by an increase in the flow of foreign funds into the country.
The currency was trading at EGP 17.34 to the dollar on Sunday, up more than three percent from 17.86 on 22 January when it began its latest round of strengthening.
“You’re seeing most of the indicators improving,” said Hany Farahat, senior economist at Egyptian investment bank CI Capital.
“Tourism, exports, substitution of natural gas imports with domestic production, remittances are at a peak, FDI is improving slightly.”
Farahat also said the higher inflows were due in large part to Egypt scrapping a mechanism that guaranteed foreign currency for investors exiting the government securities market.
“Once the repatriation mechanism was abolished, it meant that every single inflow coming into the country reflects directly on interbank liquidity,” he said.
“This, in tandem, should also reflect directly on EGP volatility against the dollar.”
“I think it has come a bit late. If the repatriation mechanism had been removed a year ago, this appreciation would have happened a year ago,” he said.
Since the central bank floated the currency in 2016, economists say it has closely controlled the value of the pound, which was last seen this strong in March 2017.
Allen Sandeep, head of research at Naeem Brokerage, said the higher inflows were also due to increased carry trade appetite for Egyptian treasury securities and improving balance of payments.
“We have now restarted LNG exports,” Sandeep said. “On an annual basis, assuming that we export 1 billion cubic feet (bcf) of gas every day, that adds more than $2 billion in exports per year.”
Egypt, which now exports 1.1 bcf of natural gas per day, became a net exporter in late 2018, a significant turnaround for a country that spent about $3 billion on annual LNG imports as recently as 2016.