Bankers ruled out the flotation of the Egyptian pound by Egypt’s central bank before making the official request to borrow from the International Monetary Fund (IMF), scheduled for the end of October or the beginning of November.
Christine Lagarde, managing director of the IMF, noted on Saturday that the Egyptian government will have to implement its commitments to complete the reforms agreed with the IMF, including reducing energy subsidies and making the exchange rate more flexible before considering granting the loan.
From Lagarde’s remarks and those of other IMF officials, the market understands that the CBE will be obliged to float the Egyptian pound before the end of October or the beginning of November to meet the fund’s requirements.
According to Mohamed Abdel Aal, a board member for both the Suez Canal Bank and Arab Sudanese Bank, the market misunderstood IMF’s officials’ statements.
He emphasised the impossibility of floating the Egyptian pound during the current period, in light of the scarcity of foreign currency resources that can help the Central Bank of Egypt (CBE) to bear the consequences of such a decision. There is a gap estimated at $65bn between the state’s revenues and expenditures in foreign currencies.
He added that the loan agreement will oblige the CBE to follow an exchange rate policy with more flexibility. Therefore, the CBE will not be forced to move the exchange rate before or after officially applying for loans from the fund.
Abdel Aal expects the CBE to follow the controlled flotation and drop the Egyptian pound’s value down against the US dollar by 30%, either once or twice.
According to Tamer Youssef, head of a treasury sector at a foreign bank operating in the domestic market, any move from the CBE’s side related to the exchange rate will not be before ensuring the entry of the $6bn negotiated with Saudi Arabia, China, and other countries, whether by entering the liquidity or through pledges by those countries, besides the willingness of the state to bear the consequences of any decision taken in this regard.
Youssef ruled out the possibility that the CBE will fully float the Egyptian pound’s price against the US dollar, because it is not in possession of sufficient foreign exchange that enables it to support the local currency. He expected the CBE to adopt a more flexible policy in regards to the exchange price, so the Egyptian pound’s price against the US dollar meets the market’s requirements.
Source: Daily News Egypt
