During last week’s National Youth Conference in Alexandria, President Abdel-Fattah Al-Sisi focused on the impact of devaluation and the shortage of US dollars.
“We are flexible in the exchange rate, to be clear. But when the matter touches on Egypt’s national security, and the Egyptian people are lost? No. No, no, no,” Al-Sisi said.
“I’m speaking seriously. I’m saying this on air. When the exchange rate has an effect on the lives of Egyptians, and could cause them to be lost, we won’t remain seated. We cannot,” he said to applause.
His remark appeared to confirm that the IMF’s review of its $3 billion loan to Egypt, agreed in October, is not running smoothly. Under the loan programne, Egypt agreed to a flexible exchange rate. While the Egyptian pound subsequently lost more than half its value against the dollar, since mid-March the official exchange rate has remained stable at LE30.96.
The government’s delay in switching to a flexible exchange rate and its failure to sell stakes in state-owned companies led the IMF to delay its review of the loan and pushed Moody’s to downgrade Egypt’s credit rating, former industry and trade minister Mounir Fakhri Abdel-Nour told the National Dialogue last week.
“The president was clear about the dangers another devaluation will pose to national security. It will fuel inflation, making life even more difficult for the majority of Egyptians, threatening social and political unrest,” Mohamed Abdel-Hamid, deputy chairman of parliament’s Economic Committee, told Al-Ahram Weekly.
Millions of Egyptians have voiced concern that a fully flexible exchange rate will impact their lives. The president’s statement clarified that the government will not impose such a measure as a matter of national security, he said.
“President Al-Sisi’s statement showed citizens that the state will protect them from the IMF’s conditions and from the brunt of the impact of changing exchange rates on the price of fuel, electricity and basic commodities.”
“At the beginning, I was in favour of eliminating fuel subsidies, but after the change in foreign exchange rates I refused to proceed in this direction,” said Al-Sisi. He stressed that further liberalisation of the exchange could see electricity bills double.
President Al-Sisi asked the government to delay the lifting of electricity subsidies from January to the end of June. His latest remarks, argued Abdel-Hamid, suggest the moratorium will continue until at least the end of the year.
“Instead of moving to a flexible exchange rate, we need to boost exports and reduce imports. Currently, we import $25-30 billion worth of production inputs annually. If we produce more of these locally, we will be able to overcome this FX gap crisis,” said Al-Sisi.
Mohamed Al-Manzalawi, a member of the Senate’s Financial and Economic Affairs Committee, says there is a consensus among senior officials that the best way to overcome Egypt’s shortage of foreign currency is to boost industrialisation to increase exports and reduce imports.
“The policy of borrowing and obtaining foreign credit facilities should be scrapped in favour of local production. We need to pursue industrialisation policies that will help the country dispense with many imports,” he said.
Abdel-Nour believes that at least part of the solution to the shortage of foreign exchange is to speed up the privatisation programme.
“In its deal with the IMF last October, the government pledged to sell $2 billion worth of state assets before the end of June. But the government has sold just $150 million worth of assets, ie 7.5 per cent only of the target.”
Abdel-Nour also noted that in the State Ownership Policy Document, released in January, the government committed to selling $4.6 billion worth of assets during FY 2023-24, and a further $1.8 billion during FY 2024-25.
In his remarks, Al-Sisi said the government will continue implementing the Decent Life initiative in rural Egypt despite the three-stage project costing more than LE1 trillion.
Abdel-Salam Al-Gabali, head of the Senate’s Agriculture Committee, told the Weekly that the president’s statements on the initiatiove were a response to critics claiming it was too expensive given the current economic crisis.
President Al-Sisi also made clear that he will implement all the recommendations made by the National Dialogue. “I really appreciate that the dialogue aims to serve national interests and am committed to ratifying its outcomes without restriction as long as they fall within my constitutional powers,” he said.
“Matters outside my authority will be referred to parliament for debate and a vote.”
“President Al-Sisi’s statement confirms his earlier position. He wants the dialogue to move Egypt into a new phase of economic and political stability,” said National Dialogue General Coordinator Diaa Rashwan.
* A version of this article appears in print in the 22 June, 2023 edition of Al-Ahram Weekly