October 20, 2022


The EGP has already fallen nearly 22% since March,

when the central bank devalued the currency in response to rising external pressures fueled by the war in Ukraine.

Devaluing the pound was set to boost the competitiveness of exports and better position Egypt for a new loan from the IMF, yet it seems like it hasn't been enough to offset high commodity prices and the flight of foreign direct investments. Egypt is currently facing a foreign-ex-change crunch akin ti that faced back in 2016. The EGP fell past 19 EGP/USD, bringing it roughly 3% away from 2016's all-time low. Also, speculations have grown in recent weeks tht the EGP will need to slide more against the dollar to manage the growing external imbalances and attract foreign capital back to the country.

Why are expectations getting stronger about a second wave of depreciation?

A. Growing Financing Gap:

According to Fakhri Al-Feqi, head of the parliamentary planning and budget committee, Egypt’s financing gap amounts to about $25bn, of which $15bn are installments and debts due during the current year, and the rst is from the deficit in the balance of payments, which is largely due to the weakness of domestics savings,
which represent only 13% of GDP.

B. Rising Debts:

A report released by the world bank at the beginning of July indicated that Egypt’s foreign debt had reached unprecedented levels of nearly $158 billion as of the end of march. Egypt has committed to repaying $33 billion in foreign debt in a one-year period, from march 2022 to march 2023, according to the report (which accounts for almost all of the country’s foreign currency reserves, estimated now at $33.3 billion).

c. Foreign Outflows:

The country has seen about $20 billion in foreign outflows after investors in local debt exited. when the fed raised interest rates, hot money speculators shifted their dollar, or hard currency, investments frim Egypt to US treasury bonds in search of higher returns. Currently, the fed offers higher interest rates than the central banks of most od the world’s large economies.

D. New IMF Loan:

Egypt is currently seeking a new loan from the IMF that could be inder the extended fund facility (EFF) for 4 years. According to moody’s latest report, this could lead to a gradual devaluation of the EGP.

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