Growing stronger

xx Al-Ahram Weekly Editorial
Tuesday 25 Feb 2020

The Egyptian pound continued its steady climb against the dollar last week, gaining half a pound since the beginning of this year. This progress reflects the upward trajectories in Egypt’s fiscal health, economic performance and influx of investment. The Bloomberg news site predicts further appreciation of the pound thanks to rising inflows of foreign currencies. After it was floated in late 2016, the Egyptian pound has become particularly popular with currency traders lured by high returns on local bonds and the economic reforms undertaken by President Al-Sisi, Bloomberg reported in mid-January. A recent report by Reuters adds that the appreciation “is mainly portfolio-flow-driven and mainly from GCC portfolios, mainly in large purchases of Egyptian pound treasury bills,” as well as by “stable and consistent remittances and tourism”.

The pound has not been this strong against the dollar since the week after Egypt allowed its currency to weaken as part of an economic reform plan backed by the IMF more than three years ago. “The pound last traded as strong on 17 November 2016, six days after it signed a $12 billion, three-year loan agreement with the IMF,” Reuters wrote. 

Other factors have contributed to the pound’s strong recovery. Remittances from Egyptians working abroad rose to $6.71 billion in the July-to-September quarter last year, the most recent quarter for which figures are available, from $5.91 billion a year earlier. Tourism revenues rose to $4.19 billion in the same quarter, from $3.93 billion the previous year. 

The decline in dollarisation since 2017 has also had an impact. Individuals and businesses have sharply reduced hoarding dollars due to tougher regulations on imports and rising interest rates on local currency deposits. According to experts, there was a noticeable increase in the influx of dollars after the Central Bank abolished the profit transfer mechanism in December 2018, a decision that also affected earnings on local bonds and shares listed on the Egyptian stock market. They held that the old instrument had prevented the pound from realising its full capacity and was a main reason why it remained lower than its real value. 

According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), Egypt’s annual urban consumer inflation rate rose to 7.2 per cent in January 2020 from 7.1 per cent in December 2019. Nevertheless, it should be borne in mind that this remains within the Central Bank’s target range of nine per cent, plus or minus three percentage points. Banking experts attribute the improvement in the Egyptian pound’s performance against the dollar to the deregulation of the exchange rate, which worked to eliminate the black market in hard currencies, and to the increasing trend to channel dollar usage towards its actual sources, which is to say in importing the country’s primary needs. 

These optimistic reports on the rebound of Egypt’s currency give our macroeconomy a much-needed moral boost. This, alone, offers incentives to local and foreign investors who need to hear reassuring messages from time to time, especially against the backdrop of a global economy that is exhibiting unfavourable performance indicators.

 

*A version of this article appears in print in the 27 February, 2020 edition of Al-Ahram Weekly

Short link: