RIYADH: The Egyptian pound is approaching a critical threshold of 50 per US dollar, as indicated by recent figures from the Central Bank, which currently value the pound at 49.16 per dollar.
This development follows recent increases in subway fares and fuel prices. Throughout June and July, the pound fluctuated between 47 and 48 to the dollar, after a dramatic depreciation in March when it had lost roughly 60 percent of its value, dropping to about 30 pounds per dollar.
Economist Mahmoud Khairy, in an interview with Arab News, highlighted that this surge in the pound’s value has both positive and negative consequences.
On the negative side, Khairy said that continued increases could lead to another wave of imported inflation, adversely affecting domestic demand and business output. The lack of stability in the foreign exchange market could also create uncertainty for firms and consumers, impeding their ability to make informed decisions.
Khairy added that a rising pound might signal to the market and the International Monetary Fund that Egypt’s foreign exchange market is fully free-floating, with no imposed ceilings or intervention from the Central Bank of Egypt. This could lead to a successful IMF review and encourage foreign portfolio investments.
These developments come in the wake of the IMF’s approval of approximately $820 million in funding for Egypt, following the completion of the third review of the country’s extended arrangement.
The IMF had earlier approved an expanded $8 billion support program for Egypt, which had been hit hard by the Gaza crisis. The crisis had negatively affected tourism and caused a significant decline in Suez Canal revenue due to disruptions in Red Sea shipping.
According to the IMF, recent efforts by Egyptian authorities to restore macroeconomic stability are showing signs of progress, though inflation remains high.
The IMF said that inflation is coming down but remains elevated, and emphasized that a flexible exchange rate is a key component of Egypt’s economic reform program.
An IMF official mentioned in a video press conference that Egypt would undergo a fourth review from mid-September to December 2024, with the possibility of receiving an additional $1.3 billion if successful. Inflation is projected to fall below 15 percent by the end of June.
Egyptians have been struggling with high inflation rates, although a recent decrease in food prices has led to an annual consumer price inflation rate of 27.1 percent in June 2024, a slight decrease from 27.4 percent the previous month.
The Central Agency for Public Mobilization and Statistics reported that the general consumer price index for June 2024 stood at 225.6 points, following a significant interest rate hike by the central bank in early March and a shift to an inflation-targeting regime that allows market forces to determine the exchange rate.
Cairo’s subway fares officially increased last week, now ranging from 2 to 5 Egyptian pounds. These price hikes are part of broader measures deemed necessary to fulfill the IMF’s conditions for further financial assistance, following Egypt’s agreement to expand its bailout package to $8 billion earlier this spring.
