The US dollar rate further declined on Monday to EGP 47.2/1 USD for selling and to EGP 47.1/1 USD for buying, down from EGP 47.3/1 USD for selling and EGP 47.2/ 1 USD for buying posted on Sunday, according to the CBE’s official website.
Monday’s rates are also below the rates seen on 6 March, which stood at EGP 49.5/1 USD for selling and EGP 40.4/1 USD for buying.
It also went down at the major banks; including at the CIB, EGP 47.8/ 1 USD for selling and EGP 47.7/1 USD for buying, the National Bank of Egypt and Banque Misr to EGP 47.4/1 USD for selling and EGP 47.3/1 USD for buying.
“The performance of the EGP underscores significant progress in addressing the issue of FX shortage,” Ali Metwally, an economic consultant at IBIS Consultancy, told Ahram Online.
In this respect, Metwally explained that recent developments over the past weeks have been pivotal.
These include the rapid materialization of the Ras El-Hekma deal with the UAE, which injected $15 billion into Egypt's economy within a week (comprising $10 billion in FDI and $5 billion in UAE deposits at the CBE converted into FDI). An additional $20 billion is expected in Q2 2024.
These developments also include the successful expansion of the latest IMF deal to $8 billion, despite delays in the first and second reviews of the programme last year, along with potential receipts of $1.5 billion to $3 billion within Q2-Q3 2024.
Moreover, the anticipated EU announcement of a $8 billion financial package with Egypt following an elevation of their relationship to the level of strategic and comprehensive partnership, as well as the recent $6 billion in financing the World Bank Group approved for Egypt.
“These timely inflows of foreign currency from the UAE, alongside pledges of significant financial backing, demonstrate confidence in the Egyptian economy from major international investors. This confidence can attract additional investments, bolstering demand for the EGP”, Metwally told Ahram Online.
Moreover, according to Metwally, positive news fosters a more optimistic outlook on the Egyptian economy, potentially leading to increased foreign investment in Egyptian assets such as stocks and bonds, thereby strengthening the EGP.
“Notably, this trend has already begun, with major investment banks recommending the purchase of Egypt’s Treasury bills once again”, he added.
For his outlook on the EGP performance over the short term, Metwally explained to Ahram Online that the fair value of the EGP ranges between 35 (minimum) and 55 (maximum) against the USD, with an average of EGP 45/1 USD.
“This average aligns with the consensus range among major investment banks and analytics firms, forecasting the EGP to appreciate further to EGP 43:1 USD by the year's end. However, this projection is contingent upon maintaining policies that stimulate investment, encourage capital inflows, and sustain financial reforms, ensuring the efficacy of the central bank’s monetary policy in defending the currency if needed,” said Metwally.
Yet, Metwally addressed a number of factors that could disrupt the appreciation the EGP has gained against the greenback.
In this respect, Metwally noted that despite reporting a modest balance of payments surplus over the past two years, Egypt has faced significant FX market pressures, attributed primarily to a persistent current account deficit since 2008, largely driven by a substantial trade deficit.
“Interestingly, the capital account has been recording a large net surplus since 2011; however, that surplus has always been offset by the current account deficit, hence, the FX shortage issue. Additionally, speculative attacks on the currency, primarily by Egyptians and local entities, have exacerbated the situation, despite the economy's underlying strength,” Metwally explained.
He also added that the CBE’s limited ability to raise its benchmark interest rate adequately last year, due to fiscal debt service obligations, has further hampered its ability to combat speculative attacks and alleviate FX market pressure.
To sustain positive momentum, according to Metwally, Egypt must leverage current favourable developments to recalibrate its trade mechanisms, enhance private sector involvement in the economy, recover lost expat remittances, improve government service efficiency, and uphold agreed-upon reforms with the IMF.
“Failure to prioritize resolving the excruciating trade imbalance and reliance on traditional approaches may precipitate another currency crisis within the next 3-5 years, underscoring the importance of fostering innovative strategies to expand Egypt’s manufacturing base to meet domestic demand, improve export avenues, attract investment, and create a regulatory framework that fosters fair competition while imposing stringent penalties on monopolistic practices,” said Metwally.
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