Egyptian pound’s coronavirus immunity waning

CAIRO: Egypt’s pound has been a rare riser among emerging market currencies beaten down by the coronavirus fallout, but pressure is growing on it to weaken.
An expected fall in remittances from Egyptians working in oil-rich Gulf countries, debt repayments and a collapse in tourism revenues and low global gas prices will put the country’s foreign reserves, already at their lowest level in over two years, under more strain, say economists and bankers, limiting the central bank’s room to maneuver.
Like monetary authorities in other emerging economies, Egypt’s central bank has kept the pound steady in recent weeks by using some of its foreign reserves, analysts said, as the coronavirus pandemic encouraged investors to ditch riskier assets.
A potential agreement with the International Monetary Fund (IMF) for financing could add to the pressure on the pound over the medium term, economists say.
The IMF’s general view is that the value of currencies is best determined by markets, despite Kristalina Georgieva, the new head of the fund, saying recently that flexible exchange rates may not always be the most suitable shock absorber for developing economies under stress.

“Risks have increased of some near-term adjustment,” said Farouk Soussa, Middle East and North Africa economist at Goldman Sachs, adding that he expected Egypt to focus on keeping the pound stable for now.
“We have heard concerns that a new IMF program may require greater pound flexibility in the medium term as well but the evidence would suggest that pound stability and an IMF program are not mutually incompatible.”
The IMF declined to comment, referring to a statement on Sunday confirming a request from Egypt and praising authorities for the measures they had taken to counter the COVID-19 impact. Egypt’s state press center did not respond to questions from Reuters.