Egypt Hopes to See Effect on Commodity Prices
(Cairo) The cause for the current rise in the exchange rate of the Egyptian pound against the US dollar are a set of factors that all reflect a national economic rebound, economists have said.
The Egyptian pound has been gaining strength against the greenbacks for almost two months now, regaining about 6% of its value against the American currency. The value of the US dollar is now 17.30 pounds, from 17.80 pounds in mid-January. This is believed to be the beginning of a downward trend for the US dollar in the coming months, economists have said.
“This trend is a reflection of the economic successes happening here,” said leading banking expert Ashraf al-Qadi. “Monetary planners have managed to make the dollars available within the banking system at a rate commensurate with international rates.”
The Egyptian pound lost almost half of its value against the dollar soon after Egypt liberalized its national currency in November 2016. The pound exchange rate liberalization was part of a package of economic reforms initiated by Cairo with the aim of gaining investors’ confidence, eradicating a parallel foreign currency market and agreeing to a $12 billion loan deal with the International Monetary Fund (IMF).
The drop in the value of the national currency was catastrophic to tens of millions of Egyptians whose earnings were quickly dwarfed by commodity prices which shot up to unprecedented levels. The prices of commodities in the local market almost tripled, making it hard for some Egyptians to put food on the table. Nevertheless, the authorities took a series of measures to cushion the effects of the price hikes on the poor, including raising the amount of money earmarked for the national food subsidy system and also launching a number of welfare programs for the needy.
The economic reforms have been paying off, as is reflected in economic indicators. The Egyptian economy grew at 5% in 2018 and Cairo has hopes that the economy will grow by more than 6% in 2019. Exports have risen to more than $22 billion from less than 16 billion before the start of the economic reform program. Imports are also falling while remittances from Egyptian workers outside Egypt are increasing noticeably. The tourism sector is also picking up, bringing in more foreign currency revenues.
These are all factors, economists have said, that are contributing to the current drop in the exchange rate with the US dollar, the main import currency here, against the Egyptian pound. “All these developments have had a strong effect on the value of the national currency against all foreign currencies,” said independent financial analyst Mohamed al-Najjar. Egypt also expects to witness further positive economic developments in the coming months with the economic reform program preparing to come to an end in a few months time.
Egypt will receive the final tranche ($2 billion) of the IMF loan of $12 billion in June or July. The arrival of the last tranche of the loan will officially conclude the economic reform program which included major subsidy cuts and the imposition of a value-added tax. In terms of development, this will help Cairo expand its welfare programs for the poor, increase spending on health and education and also allocate more money for development projects, economists have said. This will also have a toll on the value of the national currency against all foreign currencies.
The drop in the value of the US dollar also increases the hopes for a similar drop in commodity prices, which is why ordinary Egyptians follow news of the ongoing strengthening of the pound very closely. “The decline in the exchange rate of the US dollar will mean a drop in commodity prices,” said Ahmed Shiha, the head of the Importers’ Section at the Cairo Chamber of Commerce. “But the drop happening today may take months to translate into lower commodity prices.”