Egypt Pound Devaluation: A Year of Economic Uncertainty

The past year has been a wild ride for Egypt's economy, with the Egyptian Pound (EGP) experiencing a significant devaluation. The value of the pound plummeted by 50% against the US dollar, from around 15 EGP to 30 EGP.

This sharp decline in value has led to higher prices for essential goods and services, making life more difficult for many Egyptians. The average monthly inflation rate rose to 14.4% in 2022, a stark increase from the 3.5% seen in 2021.

The devaluation has also led to a shortage of US dollars in the country, making it harder for people to access foreign currency. The central bank has been struggling to maintain a stable exchange rate, and the black market for foreign currency has become increasingly active.

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The value of the Egyptian pound has plummeted in recent years, making imports and foreign travel more expensive for Egyptians.

In 2016, the pound's value dropped by over 50% against the US dollar, from around 8.85 pounds to the dollar to over 18 pounds.

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This devaluation has had a significant impact on the country's economy, with inflation rising to over 30% in 2017.

The Egyptian government has taken steps to stabilize the currency, including imposing capital controls and floating the pound on the black market.

The black market rate has been significantly higher than the official rate, with the pound trading at around 20 pounds to the dollar in some cases.

This has led to a shortage of US dollars in the country, making it difficult for Egyptians to access foreign currency for travel and other purposes.

As a result, many Egyptians have been forced to rely on informal currency exchange services, which often come with high fees and risks.

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The IMF loan has had a significant impact on Egypt's economy. The $3bn loan programme, approved by the IMF last year, comes with conditions that include a shift to a flexible exchange rate regime and monetary policy aimed at reducing inflation.

This shift has led to exchange rate volatility, making it challenging for businesses to predict their costs. As one businessman noted, "Before, I knew how much my products would cost for the next eight months. But now, we sell at one price in the morning, another in the afternoon, and a third at night."

The government has assured the IMF that it will not use banks' net foreign assets to stabilize the currency.

Egypt's foreign debt has more than tripled in the past decade to $157bn. This staggering figure is a result of the country's dependence on bailouts from the IMF and Gulf allies.

The IMF loan programme, worth $3bn, was a fraction of Cairo's debt service, which alone amounted to $42bn in 2022-2023. This highlights the massive burden Egypt is facing in servicing its debt.

Egypt has only $34bn in foreign currency reserves compared to $41bn last February. This decline in reserves is a worrying sign for the country's economic stability.

Many banks have limited foreign currency withdrawals and increased credit card charges. This is a direct result of the economic strain caused by Egypt's debt crisis.

According to ratings agency Moody's, Egypt is one of the five economies most at risk of defaulting on its foreign debt. With a population of 104 million, the country is facing a significant challenge in managing its debt.

The IMF loan approved for Egypt is a significant development that comes with certain conditions. The loan program is worth $3 billion.

One of the main conditions of the loan is a permanent shift to a flexible exchange rate regime. This means that the Egyptian government will have to adapt to a more dynamic currency market.

The IMF has also called for a monetary policy aimed at gradually reducing inflation. This is a crucial step in stabilizing the economy.

The loan program also requires Egypt to carry out wide-ranging structural reforms to reduce the state footprint. This will involve reducing the dominance of state and military-led enterprises in the economy.

The Egyptian government has assured the IMF that the central bank will not use banks' net foreign assets to stabilize the currency. Instead, the central bank might occasionally step in at times of excessive exchange rate volatility.

Business owners in Egypt are already feeling the impact of these changes. Some have reported that their products are selling at different prices at different times of the day due to exchange rate fluctuations.

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The devaluation of the Egyptian pound has raised several concerns and risks that are worth considering.

The sharp decline in the value of the pound has led to a surge in inflation, which could erode the purchasing power of Egyptians.

Food prices have already begun to rise, with some staples increasing by as much as 30% in a single month.

The devaluation has also made imports more expensive, which could lead to shortages of essential goods.

Egypt's economy is heavily reliant on imports, so a sustained period of devaluation could have serious consequences.

The country's foreign currency reserves are already low, and the devaluation has further depleted them.

This has raised concerns about Egypt's ability to pay for essential imports, including food and medicine.