The Egyptian pound fell against the dollar on Tuesday, nearing 48 pounds in some banks.
Despite Prime Minister Mustafa Madbouly’s assurance of clearing all goods at Egyptian ports, some traders are holding back deliveries, expecting the pound to weaken further.
Madbouly mentioned that the Finance Ministry seized $1.7 billion worth of goods, but owners are hesitant to accept them, waiting for the dollar’s price to drop.
Capital Economics predicts the Egyptian pound will hit 49 against the dollar by year-end, down from the current 47 average, and may drop further to 50-55 in the coming years.
Meanwhile, Egypt’s GDP is expected to grow by 2.3% in 2023-2024, then dip to 1.5% in 2024-2025 before bouncing back to 5% in the following fiscal year.
The transition to a more conventional economic policy will initially slow down growth, but it's expected to pave the way for stronger GDP growth in the long term.
The recent Central Bank’s decision to reduce the pound’s exchange rate hints at a more flexible monetary approach.
This could mean avoiding interest rate hikes and securing an $8 billion deal with the IMF, along with additional assistance from the European Union and the World Bank. It’s a positive sign for Egypt’s financial support.
Those agreements have improved Egypt’s financial standing abroad, with all financial aid promises expected to bring in a significant flow of foreign currency, covering more than the total external financing needs of Egypt.
Meanwhile, Capital Economics notes that foreign capital inflows into local bond and stock markets have sped up, with hopes that Egypt's political moves will boost direct investment.
However, it anticipates some challenges ahead, as the government intends to stick to tight fiscal policy and aims to increase the initial budget surplus from 2.5% to 3.5% of GDP.
Additionally, Capital Economics points to plans to extend the maturity of public debt, which will ease concerns about Egypt's fragile debt situation.
The research firm expects the government debt-to-GDP ratio to drop to 93% in 2024-2025 and 89% in 2025-2026 from an estimated average of 96.2% in the current fiscal year.
