The devaluation of the Egyptian pound on Friday has caused the currency to hit a new low, three days after it was devalued by about 15 per cent, depreciating to 24 against the US dollar by the close of business.
The government of President Abdel Fattah El Sisi sought to allay fears after the pound’s depreciation, releasing data showing that the country’s strategic reserves of key commodities, including wheat, would last six months or longer.
Egypt announced on Thursday that it was adopting a system in which the value of the pound would be determined by supply and demand.
Through months of negotiation, the IMF achieved a breakthrough last week when Washington-based lender agreed to provide $3 billion in loans.
Egypt is set to receive $5 billion from international backers and another $1 billion from a newly created sustainability fund, according to the IMF.
The fallout from the Russia-Ukraine war has been difficult for Egypt’s economy to weather, particularly for food and fuel, driving up its import bill, and the speedy withdrawal of about $25 billion from its once-profitable debt market.
Hassan Abdalla, the governor of Egypt’s Central Bank, spoke to reporters after the meeting.
On Thursday, the pound closed at about 22.5 to the dollar, down from 19.6 prior to the devaluation, the second such occurrence in six years.
A 35 percent drop in the pound’s value since March is almost certain to fuel inflation, which was already about 15 percent in September and would hit hard most of Egypt’s 104 million people.
According to experts, the pound’s value is expected to drop to about 25 dollars by the end of the year.
Investors returning to the country’s debt market, higher tourism revenues, and Gulf Arab allies’ investments could help stabilize the currency by 2023, according to them.
As of now, according to the El Sisi government, the country’s reserves of wheat will meet demand until April, when the local harvest season begins.
Egypt has enough stored sugar to last until February and enough stored cooking oil to last until May to meet demand. Rice, another staple, is self-grown.
Egypt is frequently the world’s largest wheat importer—13 million tonnes on average—and has dealt with skyrocketing prices on global markets since the Russia-Ukraine conflict began in February.
A decrease in prices occurred later, but now there is a chance that they will rise again after Russia suspended an agreement allowing major Ukraine grain exporters to use Black Sea ports.
Egypt’s reliance on the two warring nations for about 80% of its wheat imports, which are critical for meeting domestic demand for subsidized bread for 60 million people, is proving problematic.
Last week, President Abdel Fattah el-Sisi expended two hours speaking about the economy at a conference, and last night he phoned a late-night talk show for 90 minutes to discuss the economy.
The primary focus of his remarks was defending his economic policies against those who question his government’s spending priorities.
Egypt has suffered since President Abdel Fattah El Sisi began economic reforms in 2016, he acknowledged.
The government instituted new taxes, higher charges for services and utilities, and lifted state subsidies on fuel, potable water, and domestic electricity.
“They can not be burdened further,” he said. “What we need is to expand our social protection umbrella,” he said.
Image Credit: REUTERS/Mohamed Abd El Ghany