CAIRO – The Egyptian pound has dropped to record lows on the black market in the past week, hovering between 9 and 9.25 per dollar, as importers struggle to find dollars for their operations and pressure mounts on the central bank to devalue the pound.
Several local newspapers this week reported that the central bank had directed local banks to prioritize giving dollars to pharmaceutical companies to import medicine and supplies.
“They have been delayed for a while, like everyone else is, but they definitely should have the priority,” said Hany Farahat, a senior economist at CI Capital in Egypt.
Net international reserves have remained around $16.5 billion in recent months, having declined from $36 billion in December 2010, a month before the 2011 uprising that toppled longtime autocrat Hosni Mubarak.
Central bank Governor Tarek Amer said late on Sunday the bank would only consider floating the pound once the country shores up its foreign currency reserves to $25 billion or $30 billion.
Amer said in a televised interview with the prominent TV commentator Ibrahim Eissa that the bank is mindful of the inflationary effects for ordinary Egyptians if they float the pound, as the country depends on imports for many consumer goods.
A devaluation would cause a surge in prices for Egyptians, whose economy has yet to recover from years of turmoil since Mubarak’s ouster, in spite of President Abdel-Fattah el-Sissi’s promises to set the country on track to prosperity. At the same time, a wave of suicide bombings and militant attacks has intensified since el-Sissi led the army’s ouster of Islamist President Mohammed Morsi in 2013.
Egypt’s official exchange rate remained at 7.83 at banks since the central bank strengthened the pound by 0.20 pounds in November, a move that came as a surprise to investors.
Some economists argue it is better the central bank devalues the pound sooner rather than later, instead of spending available dollars to keep the pound artificially strong.
“They cannot prevent devaluation, they’re just postponing it. And this is causing the situation to get worse and worse,” said Farahat.
While the central bank has a role to play to keep the pound steady, the government should also work on finding and implementing incentives to attract foreign investors and boost dollar reserves, said Amr Elalfy, global head of research at Mubasher Financial Services.
“To attract foreign investment to the country we need incentives and facilitation, but as long as we remain in our current situation, no one will come,” said Elalfy.