HSBC forecasts Egyptian pound to sink further against dollar as devaluation nears
The value of the Egyptian pound against the US dollar is expected to sink as a further devaluation of the local currency appears close, taking a toll on Egypt's already ailing economy amid wars in the neighbouring Gaza Strip and Sudan.
In a recent report published on 15 December, the UK-based HSBC bank has projected another devaluation of the pound in the first quarter of 2024 with the US dollar to be valued from 45 – 50 EGP.
The soon-to-come depreciation aims to facilitate the completion of a loan programme from the International Monetary Fund (IMF), the report read.
Previous HSBC forecasts for the exchange rate in the first quarter of 2024 had been between EGP 35 and EGP 40 per $US 1, though.
In October last year, the Central Bank of Egypt adopted exchange rate flexibility, allowing the rate of the pound to be regulated by market forces, in a highly criticised and controversial economic measure.
One US dollar is officially equal to about 30.90 EGP, whereas its value against the local currency in the informal, parallel market exceeds 50 EGP.
Even after the government has taken several steps in recent months to reduce the national economy's dependency on the dollar, the local market and investors are known to have been experiencing a shortage of US dollars.
Another measure taken by the government has been selling state assets to wealthy Gulf nations, including army-owned firms, to attract foreign currency and liberate the economy from state control, a significant demand of the IMF deal.
“Egypt is a country dependent on the import of most basic supplies, mainly wheat, rather than making the most of its domestic resources. This requires a constant source of foreign currencies, especially US dollars,” financial analyst Ahmed Hamouda told The New Arab.
Egypt is the world's largest importer of wheat and its current economic hardships have been blamed on external factors such as the Russian war on Ukraine and the Covid-19 pandemic, which severely impacted global supplies of foodstuff and other basic goods.
The government has lately opened the door to dollar-free trade transactions through bilateral agreements with countries including Russia, China, and India to promote the inclusion of the Egyptian pound in international financial transactions with the BRICS countries and end dollar dominance.
Earlier this year, the Russian central bank added the Egyptian pound to the Russian exchange rate.
“But such measures have not paid off so far, given the country’s inflation rate and external debts which exceed US$ 160 billion as per official figures,” Hamouda concluded.