EGP to lose 18.6 percent of its value by end of 2023: Fitch Solutions

Ahram Online , Sunday 8 Oct 2023

Fitch Solutions expected that the Egyptian pound will be devaluated by 18.6 percent to reach around EGP38 against the US dollar by the end of the current year 2023.

This file picture taken on August 25, 2022 shows Egyptian pound and US dollar banknotes. AP

In its most recent report, Fitch Solutions predicted the devaluation of the Egyptian pound against the US dollar in October 2023 as part of Egypt’s commitments to the 46-month loan programme with the International Monetary Fund (IMF).

The report added that the devaluation will allow the official exchange rate (EGP31/1 USD) to converge with the parallel market rate (EGP40/1 USD).

In addition, Fitch stressed in its report that the extent of the decline in the value of the Egyptian pound depends on the authorities’ efforts to attract more foreign inflows through the privatization programmes.

According to the report, "the government could encourage the authorities to devalue the currency by less than Fitch currently expects rather than address Foreign Exchange (FX) imbalances."

Egypt has devalued its local currency against the US dollar four times since March 2022 under pressures caused by several factors, including a shortage in foreign currency, budget cuts, and the effects of the COVID-19 pandemic and the Russia-Ukraine conflict.

The report further anticipated Egypt’s inflation to record 35.4 percent by the end of 2023 on a year-on-year basis, a slight decrease from the 36 percent rate forecasted in Fitch’s previous report in May.

In July, the IMF set its projections for Egypt’s inflation in 2023 and 2024 at 24.4 percent and 32 percent, respectively.

Egypt’s headline annual inflation hit an all-time high in August of 39.7 percent, up from 38.2 percent in July, according to figures released by the Central Agency for Public Mobilization and Statistics (CAPMAS).

Meanwhile, Egypt's annual core inflation rate declined to 40.4 percent in August, from 40.7 percent in July, as per data released by the Central Bank of Egypt (CBE).

Moreover, the report expected that Egypt's real GDP growth rate would reach 4.24 percent by the end of 2023, thus surpassing the 3.45 percent rate predicted by Fitch in its May report.

Hossam Heiba, CEO of the General Authority for Investment and Free Zones (GAFI), said Egypt increased its GDP growth rate target for the FY2023/2024 to 4.4 percent from the previously targeted 4.1 percent in September.

The World Bank revised on Thursday its forecasts for Egypt’s real GDP growth in 2023 to 4.2 percent from 4 percent previously.