Israeli war on Gaza drives down Egyptian pound on parallel market: Fitch Solutions

Doaa A.Moneim , Wednesday 25 Oct 2023

The Israeli war on Gaza has driven the Egyptian pound down to a record low on the parallel market, where it is now trading for EGP 46 against the US dollar, said Ramona Moubarak, head of MENA Country Risk at Fitch Solutions.

Fitch Solutions


Moubarak made her comments in response to a question from Ahram Online on the impacts of the escalating Israeli war on the already suffering local currency.

The exchange took place during a webinar Fitch Solutions held on Wednesday to showcase the impacts of the war in Gaza on MENA economies; chiefly on Gaza’s neighbouring countries.

The Egyptian pound has lost over 75 percent of its value against the US dollar since March 2022, with three waves of devaluation.

“Egypt is the most affected country by the Israel-Hamas war, and the war increases automatically the geopolitical risk for the country. Now, the negative sentiment because of the war has weighed on the parallel market,” Moubarak told Ahram Online.

Moubarak explained that the war in Gaza is not the only cause behind the declining value of the Egyptian pound, but it is one more factor adding to the challenges that Egypt has been facing since March 2022 following the outbreak of war in Ukraine.

Another devaluation

Moubarak told Ahram Online that another devaluation is not expected before the end of 2023, especially as the presidential elections are scheduled for early December.

“Now, President Abdel-Fattah El-Sisi, who is seeking re-election, will not devalue the currency… and put inflation on an upward trajectory,” said Moubarak.

In this respect, Moubarak noted that Egypt also seeks to benefit from favourable base effects between October 2023 And February 2024.

“If we assume no devaluation, inflation will fall towards 20 percent to 25 percent by February 2024. So this will reinforce the narrative that inflation has been contained. And when the devaluation happened anytime after the February readings are out, inflation will remain around 30 percent and will not go back to the peak of 38 percent that we are seeing now,” Moubarak explained.

In accordance with this scenario, Moubarak expected the Egyptian pound to weaken to between EGP 40-45 against the dollar by the first quarter of 2024.

“Egypt has a heavy debt repayment schedule after March 2024 for commercial, euro bonds, and loans, which make us believe that the currency adjustment will take place by around the first quarter of 2024 rather than later into 2024,” according to Moubarak.

She added that because Egypt will need to raise money, it will need to tap international markets and for that, it will need to make progress in terms of its loan deal with the IMF.

In this respect, Moubarak told Ahram Online that the government will have to devalue the currency, as it is a crucial point that the IMF is asking for now.

Out of that, Moubarak told Ahram Online that a sustained increase in input backlogs and larger imbalances in the currency market will require a deeper exchange rate adjustment, expecting the negative sentiment weighing on the parallel market should ease by the end of the year as “we get more clarity about the trajectory.”

Yet, Moubarak expected that the war in Gaza and the behind-the-scene talks with the IMF regarding the loan deal could point to an earlier devaluation than is expected.

Egypt is racing to fulfil its commitments to the IMF under the Extended Fund Facility (EFF) loan programme the fund approved for the country in December.

The country has not completed any of the reviews under the loan deal as of yet. The deal allows Egypt to secure $3 billion in eight tranches over the programme’s tenor of four years.

The key commitments revolve around applying flexible regime for both interest rates and exchange rates, increasing the private sector’s role in the economy, and bringing down both debt and inflation levels to pre-pandemic levels by the end of the programme.


In her answer to Ahram Online's question on the impacts of the war in Gaza on inflation in Egypt, Moubarak projected Egypt’s inflation to average around 25.6 percent in 2024, which is still well-beyond the target the bank set at seven percent (±2 percent) through the end of 2024.

Egypt’s annual headline inflation decelerated in September to 38 percent, down from 39.7 percent in August.

Speaking about the need to hike key interest rates, Moubarak noted that “we have seen a pause and this pause will likely continue in November and December during [the Central Bank of Egypt’s (CBE)] Monetary Policy Committee (MPC) meetings,” Moubarak noted.

Yet, Moubarak stressed that the CBE will have to hike the key interest rates by two percent (200bps) up to three percent (300 bps) before returning to maintaining the rates again.

The CBE’s MPC is set to convene on 2 November to review the key interest rates amid the ongoing escalating economic and geopolitical challenges.

Since the start of 2023, the CBE hiked the key interest rates by a total of three percent (300 bps), bringing the total increases it applied to the interest rates since March 2022 to 11 percent (1100 bps).

Moubarak wrapped up by saying that she would not be surprised if the IMF increased Egypt’s loan programme after the country’s currency is adjusted. 


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