To devalue, or not to devalue — that is not the question

Amr Hussein Elalfy
Tuesday 9 May 2023

A further devaluation of the Egyptian pound is not in itself the panacea for Egypt’s economic woes


If Hamlet had lived in Egypt, he might have opened Act 3, Scene 1 of Shakespeare’s play with a statement different from his well-known “to be, or not to be, that is the question.” Back then, Hamlet was contemplating death and suicide, comparing it to the pain and unfairness of life.

But Hamlet does not live in Egypt. Egyptians do. Nowadays, the statement reads something like this: “to devalue (the Egyptian pound), or not to devalue, that is the question.”

Egyptians have been feeling the brunt of four consecutive rounds of devaluation of the local currency over the past seven years. It started with the first major devaluation in November 2016, but until early 2022 the pound managed to stabilise and even strengthen in 2020, the year that the Covid-19 pandemic hit.

However, it took less than a month for the pound to give in to the pressure exerted by the Russia-Ukraine war. The war broke out on 24 February 2022, and the pound was devalued on 21 March. It suffered from another major devaluation on 27 October before going through the latest major devaluation on 4 January this year.

All in all, the pound has fallen in value by some 70 per cent since 2016, and 70 per cent of that drop took less than a year from March 2022 to January 2023.

Ironically, Egypt’s chronic trade deficit has not gone away, let alone improved, despite the devaluations. On the contrary, foreign direct investment (FDI) has fallen, and foreign investments in Egypt’s fixed-income securities and equities have been running out of the door since early 2022.

The only positive signals have come from the relaxation of Covid-19 measures worldwide, helping to stimulate Suez Canal revenues and tourism.

Egypt has fallen victim to two global black swan events that have pressured its finances when this was least expected: Covid-19 and the Russia-Ukraine war. However, I do not fully buy the idea that those global black swans were the culprits. More recently, the pound has come under pressure from many international players, led by the International Monetary Fund (IMF), which is not happy with the progress that has been made since it signed the last $3 billion credit agreement with Egypt.

The IMF’s call for a flexible foreign-exchange regime continues to be at the top of its prescriptions for the country. Other international players, including top rating agencies, have downgraded Egypt’s rating and outlook, among them Moody’s, Standard & Poor’s, and Fitch. Meanwhile, global investment banks, the likes of Goldman Sachs, HSBC, and Bank of America, have all been calling for yet another round of devaluation to weather the current storm.

However, I do not think this will solve Egypt’s economic problems. Even if we assume that there is no need to devalue, the pressure from speculators and doomsayers will eventually lead to the devaluation everyone is expecting. In fact, it is turning into a self-fulfilling prophecy.

Egypt is currently being cornered by almost everyone to make that abhorrent move. But it will not help unless there are sizable inflows of foreign currency into the country, and ironically these inflows will not come unless a sizable devaluation takes place. It has now become a vicious circle.

It is trust in the Egyptian pound that needs to be restored. Yes, genuine supply and demand can lead to imbalances that require currency moves, but is this enough alone? Egypt needs to undertake another Open-Door Policy, or what I would call Open-Door Policy 2.0, the Egyptian version of laissez-faire.

For the Egyptian Hamlet, to devalue, or not to devalue, is definitely not the question. The question is whether investors will trust in the seriousness of the government to empower the private sector once again as it takes long strides towards the competitive neutrality it has been promising.

The writer is a chartered financial analyst and founder of, an online financial platform.

A version of this article appears in print in the 11 May, 2023 edition of Al-Ahram Weekly.

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