Egyptian Pound Surges Against US Dollar Amid Uncertain Economic Recovery

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Over the weekend, the Egyptian pound exhibited a notable strengthening of about 25% against the US dollar, reaching 55 pounds on Monday, a significant improvement from its recent low of over 70 on parallel markets last week.

While state media reports have hailed this rise, experts anticipate it to be temporary, as dollar traders and holders have scaled back transactions amid speculation about an imminent devaluation of the pound.

The surge in the pound’s value was partly triggered by a widespread state crackdown on currency and gold traders, aimed at curbing alleged profiteering practices that were driving up the exchange rate, according to a political economy professor at Cairo University.

Reports of arrests and seizures of large amounts of gold or dollars indicate the seriousness with which the state is addressing this issue, though some believe the situation may be somewhat exaggerated.

Speculation circulating on social media and talk shows suggests that a Gulf country might deposit $22 billion into Egypt’s central bank, raising hopes for a boost in foreign currency reserves.

Furthermore, statements from the International Monetary Fund (IMF), with which Egypt is negotiating another $3 billion in funding, have fueled anticipation of a pending devaluation of the Egyptian pound, a key condition for the IMF loan.

Black market traders have reportedly reduced operations significantly, awaiting clarity on the devaluation and the outcome of the state crackdown. They are limiting transactions to trusted sources and refraining from selling dollars until the situation stabilizes.

Despite the pound’s recent strengthening, it has had no bearing on the escalating prices in Egypt, particularly in the food sector, which witnessed significant hikes in January and continues to rise.

The crackdown on currency trading has disrupted the supply of foreign currency needed for imports, leading to dwindling supplies and rising prices in supermarkets.

While there are forecasts from international financial organizations indicating a potential devaluation by the end of March, the government has not disclosed any specifics regarding the timing or extent of such measures.

Experts highlight divergent approaches within the government regarding currency policies, with some advocating for a hands-off approach, while others support crackdowns on currency traders and fixing exchange rates.

The government’s objective is to diminish demand for dollars by deterring black market trading, which includes confiscating funds from those caught engaging in illegal transactions.

Despite the current lull in black market activity, experts and traders anticipate its resurgence once the situation stabilizes, driven by economic uncertainties and the need for financial security among Egyptians.

The Egyptian Cabinet recently approved a moratorium on new government projects until July, coinciding with a looming debt repayment of approximately $16 billion, raising concerns amidst the country’s economic challenges stemming from the sharp rise in prices since March 2022.