CAIRO – Egypt held its currency steady against the dollar on Tuesday, as it moves ahead with a reform program expected to weaken the pound drastically but also hopefully pave the way for sustainable economic growth that creates jobs for a surging population.
The dollar was worth 8.8 Egyptian pounds after the weekly currency auction, although on the black market it trades at over 13 pounds, with some media reporting it had even surpassed the unprecedented 14-pound mark. Several newspapers have carried reports that devaluation was imminent.
Just a day earlier, official data showed that foreign currency reserves rose by $3 billion in September. That’s half the figure the International Monetary Fund has said Egypt should raise before its executive board meets to sign off on a bailout package to support the reforms.
Cairo has spent billions of dollars in increasingly scare foreign reserves to prop up its currency due to falling Suez Canal revenues and an ailing tourism sector. It will likely be required to float or devalue the pound in order to secure a three-year, $12 billion loan from the IMF.
“They’re moving toward a managed flotation of the currency. I think it’s a matter of weeks until it settles at around 12 pounds to the dollar, once the other $3 billion is raised,” said Angus Blair, the chief operating officer of Pharos Holding in Cairo.
Last month, IMF Managing Director Christine Lagarde discussed the reform program with Egypt’s President Abdel-Fattah el-Sissi on the sidelines of a G-20 summit in China, saying the IMF was doing everything it could to help Egypt secure the financing.
In a press briefing after the summit, the IMF said there were “very productive discussions with China and Saudi Arabia,” to provide the funding, and that “progress is being made.”
Egypt’s economy has been battered in the five years since an uprising toppled longtime ruler Hosni Mubarak, ushering in turbulent rule first by the army, then an Islamist government, and now el-Sissi, the former general who overthrew his predecessor, the Muslim Brotherhood’s elected but divisive Mohammed Morsi.
Egypt’s foreign currency reserves have dwindled as tourism has dried up over fears of terrorism, remittances have dropped because of low oil prices, and Suez Canal revenues have shrunk because of a decline in global trade. Inflation and unemployment rates are in the double digits.
While net international reserves rose to $19.59 billion by the end of September, up from $16.56 billion the month before, that still pales in comparison to the roughly $36 billion in reserves Egypt had before the 2011 uprising.
As part of its economic reform package, Egypt is expected to gradually lift state subsidies on fuel, basic services and food items, while aiming to support the poor with direct, often army-run welfare to offset the ensuing surge in inflation.
Few expect the austerity measures and price hikes to cause street protests. Authorities have jailed thousands of people in a sweeping crackdown on dissent since Morsi’s overthrow in 2013, including many of Egypt’s most prominent activists. But the government has nevertheless been promoting a message that “difficult” economic decisions lay ahead, vowing to introduce measures to protect the neediest.
The economic reforms, if carried out successfully, would eventually help wean Egypt off of billions of dollars in foreign aid — mainly from Gulf countries — which has been the economy’s main crutch since Morsi’s overthrow.
Central Bank Governor Tarek Amer has previously discussed the possibility of floating the currency, but linked it to when reserves reach $25 billion, which he hopes to achieve by year’s end.