Cairo-

The Egyptian pound went through a dramatic downward journey during the year 2022, in which it lost about 60% of its value. in prices;

Due to the increasing demand for the dollar on the one hand and the scarcity of supply on the other hand.

In the aftermath of the November 2016 flotation, the dollar reached about 20 pounds before the Central Bank of Egypt regained control and supported the pound.

And it reached the limits of 16 pounds per dollar at the beginning of 2020, but since that time pressure has increased on the local currency due to the outbreak of the Corona pandemic.

Coherent start to the pound

The beginning of 2022 marked the end of the pound's cohesion at the level of 15.75 pounds to the dollar, and local and international financial institutions and banks increased the talk about the real value of the pound, and that it is overvalued, and among these institutions is the International Investment Bank "Renaissance Capital".

With the start of the Russian-Ukrainian war in February 2022, the pressure on the Egyptian pound intensified.

Due to the flight of hot money from emerging markets, the investment bank "JP Morgan" expected a significant devaluation of the Egyptian pound, and requested assistance from the International Monetary Fund;

Which happened later.

Analysts at JPMorgan said on Tuesday that a significant devaluation of the Egyptian pound is likely to be needed, and that the country may need more help from the International Monetary Fund if pressure intensifies.

correction and downswing

And in an attempt to “correct” the position of the pound, as described by the governor of the Central Bank of Egypt at an extraordinary meeting held in March 2022;

The value of the Egyptian pound was devalued by 15%, the interest rate increased by 100 basis points, and the Egyptian pound fell to 18 pounds.

The "correction" step was not enough with the International Monetary Fund's insistence on stopping supporting the pound, and the Central Bank of Egypt in October 2022 adopted a flexible exchange rate for the pound, raised interest rates by 200 basis points, and the pound fell 15% to 22 pounds per dollar, and with The fund announced its approval of a new loan of $3 billion for a period of 46 months. The pound had fallen to 24.70 pounds per dollar, and in the parallel market it fell below 35 pounds.

The Egyptian pound concludes its violent downward journey by joining the “Hankey” list of the 10 worst performing currencies in 2022, after it fell to record levels against foreign currencies;

As a result of the deterioration of the external liquidity situation, the accumulation of external liabilities, and the decline in cash reserves.

The Central Bank of Egypt did not remain silent in front of the black market’s encroachment on the pound and the intensification of speculation on the dollar, and it issued in the middle of the last month of 2022 exceptional decisions claiming to block the black holes from which the dollar leaks, including shortening the period for receiving the proceeds of gold export operations to 7 working days from the date Shipping, instead of 6 months, and adjusting withdrawal limits on bank cards for use abroad.

The Central Bank of Egypt justified these measures by claiming to confront speculation on the dollar on the one hand, and the exploitation of bank cards abroad in buying and selling operations, and it raised interest 3% at once for the fourth time, to 16.25% on deposits and 17.25% on lending;

This stopped the pound's collapse in the parallel market.

No stability again

Despite the drop to 24.80 pounds per dollar officially, the International Monetary Fund believes that this price is higher than its value, and the head of the fund’s mission to Egypt, Vladkova Hollar, said - in an interview with Reuters - that the fund is awaiting Egypt’s transition to a permanently flexible exchange rate after canceling the financing condition. Imports with letters of credit at the end of last December.

The International Monetary Fund expects to see daily movements in the exchange rate in Egypt by the end of this month, after canceling imports through letters of credit, according to Reuters.

In response to the terms of the fund, the Central Bank decided, two days before the end of 2022, to cancel the periodic book issued on February 13, 2022, regarding stopping dealing with collection documents and allowing them to be accepted to carry out all import operations.

This step - according to the expectations of the International Monetary Fund - indicates seeing daily movements in the exchange rate in Egypt at the beginning of the new year, after canceling imports through documentary credits, and switching to a flexible exchange rate.

The dollar shortage crisis caused a violent shock to the Egyptian economy.

This made Egyptian President Abdel Fattah El-Sisi describe it in his statements as "revealing" for Egypt, and said that the dollar bill increases year after year.

The pressure on the pound continues

The implementation of the International Monetary Fund’s demands one after the other makes the Egyptians wait for many fluctuations in their local currency at the beginning of the new year based on supply and demand, especially with the return to working with collection documents and facilitating import operations.

This makes the pressure on the Egyptian pound more severe, and leads to a continuous and volatile decline.

Lifting pressure on the Egyptian pound in order to restore its balance and some of its collapsed value depends - according to experts and economic analysts - on Egypt's ability to once again access international bond markets and attract huge foreign investments, which are temporary but quick solutions.

In order to reach complete, effective and sustainable solutions that help stabilize the exchange rate of the pound against foreign currencies - albeit relatively - the Egyptian government must adhere - according to the IMF program - to several points, most notably:

  • Undertake large-scale structural reforms to reduce the influence of the state and enhance governance and transparency.

  • Gradually reducing inflation rates and abolishing subsidies for lending programs.

  • Fiscal control and debt management to ensure a decline in the public debt-to-GDP ratio.

In order for these points to be achieved, the Economist research unit expects the pound to continue to decline against the dollar over the next four years.

That is, until the year 2026;

Which makes predicting a fixed or final price for the Egyptian pound difficult.

Questions persist in economic circles and the Egyptian street about the future of the Egyptian pound against foreign currencies and the interest rate situation with the continued increase in inflation rates and price hikes.

And the most pessimistic scenarios about the future of the Egyptian pound in early 2022 did not expect the pound to go through this dramatic journey, which exceeded all expectations of local and international investment banks and companies, financial analysts and economists, and ended with it reaching 38 pounds in the black market and about 25 pounds in the central bank.