Egypt pound slides further amid continued chaos for business

Currency traders hold of from dollar purchases while the Egyptian pound's value continues to tumble on the black market.

MENA

2 min read

The New Arab & agencies

01 November, 2016

Food shortages in Egypt have caused the government to intervene in distribution [AFP]

The Egyptian pound slid further against the value of the dollar on the black market, amid rising food prices and shortages.

According to currency traders who spoke to Reuters, dollars were bought on Monday for 17.5-17.85 pounds. Dollars were then sold to importers for between 18-18.2 pounds, as compared to 16.1 just days ago.

"I am not convinced with these prices... it is not real demand," one importer told the London-based news agency.

"There is a decision by importers to stop importing for a few months to cool the prices down."

Due to the current price of dollars, some traders have ceased purchases until conditions change. This week, The Federation of Egyptian Chambers of Commerce asked its members to stop buying foreign currencies for a fortnight because their prices had "exceeded its fair price due to ongoing speculation". The body also called for a reduction in imports for the same period.

Egypt is suffering from a crippling shortage of dollars due to the impact political turmoil since 2011 on foreign investment and tourism. Since this time, the country's black market for dollars has thrived, while rations have been imposed on the currency by Egypt's central bank.

The pound in currently being artificially strengthened by capital controls from the central bank, keeping the pound at 8.8 per dollar. Many experts expect the pound to be devalued for a second time this year, after it was devalued by 14 percent in March.

Last week, International Monetary Fund chief Christine Lagarde suggested that a swift devaluation would allow Egypt to tackle the widening gap between official and black market rates.

"In terms of exchange rate, there is currently a crisis, because if you look at the official price if you look at the grey market price, there is a 100 percent difference so that needs to be addressed," Lagarde said in an interview with Bloomberg Television.

As a result of Egypt's economic woes, the government of President Abdel Fattah al-Sisi is seeking billions in support from abroad in order to meet conditions for a $12 billion loan from the International Monetary Fund and boost investor confidence.

The conditions of the loan will require further austerity amid rising food prices and subsidy cuts that have already been implemented.