Egyptian Economy Awaits Dollar Inflows after Currency Liberalization

People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)
People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)
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Egyptian Economy Awaits Dollar Inflows after Currency Liberalization

People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)
People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)

The Egyptian Central Bank’s move to liberalize the exchange rate of the local currency against the US dollar and raise interest rates by 6 percent is expected to have both positive and negative effects on the country’s economy, according to experts.

A positive result is represented by the anticipated dollar flows into the Egyptian market, as experts pointed to the importance of good management to achieve the utmost benefit for the overall economy.

On the other hand, the high inflation rate caused by the currency devaluation is one of the main negative repercussions of the new decision.

Egypt is likely to receive financing amounting to $3 billion from the World Bank, as part of a financing package from the International Monetary Fund (IMF) with an expected value of $20 billion, according to Finance Minister Mohamed Maait.

Cairo and the IMF had agreed to increase the value of the financing program to $8 billion from $3 billion, in addition to about $1 to $1.2 billion from the Fund’s sustainability program.

Last week, the Central Bank announced that it would raise interest rates by 600 basis points and allow the exchange rate to fluctuate according to market mechanisms, bringing the dollar exchange rate to an average of 49.5 pounds in commercial banks after it had stabilized at 30.9 pounds for nearly a year.

Maait said goods worth $13 billion have been released since the first of January until now.

The demand for the dollar is expected to continue until the release of goods seized at Egyptian customs and ports, which some estimated at about $8 billion.

As the economy awaits positive indicators to push it towards sustainable growth, inflation rates last February were higher than expectations, as they jumped to 35.7 percent, ending a series of declines that began in October, driven mainly by the rise in food prices.

Data from the Central Agency for Public Mobilization and Statistics on Sunday attributed the increase to “a rise in the prices of the meat and poultry by 25 percent, cereals and bread by 14.2 percent, fish and seafood by 11.5 percent, and dairy, cheese and eggs by 12.8%, in addition to oils by 14.1%...”

Risk analyst at Nile Financial Leasing Company Zaher Khalif expected the inflation rate to continue to rise during the coming period as a result of the devaluation of the pound.



Positive Outlook for Saudi Stock Market Next Week

A trader monitors the screen at the Saudi Exchange in Riyadh. (AFP)
A trader monitors the screen at the Saudi Exchange in Riyadh. (AFP)
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Positive Outlook for Saudi Stock Market Next Week

A trader monitors the screen at the Saudi Exchange in Riyadh. (AFP)
A trader monitors the screen at the Saudi Exchange in Riyadh. (AFP)

Saudi Arabia’s Tadawul All Share Index (TASI) ended the second week of March with a slight decline for the third consecutive week, closing down 0.73% at 11,725.88 points, compared to the previous week's close of 11,811.11 points.

In an analysis of the market performance during the week ending March 13, Dr. Suleiman Al-Humaid Al-Khalidi, a financial market analyst, told Asharq Al-Awsat that the market experienced a sharp decline not seen in years, coinciding with a drop in global markets, particularly in the US, where $2 trillion in value was wiped out in a single day.

This accounted for roughly 60% of the total market value of the Saudi stock market.

Al-Khalidi noted that the key player in the Saudi market is the banking sector, especially Al-Rajhi Bank's shares, which showed resilience and did not follow the downward trend. This was attributed to the strong profits reported by the banking sector in 2024.

The primary factors contributing to the market’s decline include global economic pressures, particularly US tariffs on most global economies, ongoing global uncertainty, and the Federal Reserve's tight monetary policies, he explained.

These factors have significantly impacted liquidity flows into financial markets. Additionally, fluctuations in global oil prices, despite recent stability, have also played a role.

This downturn has been accompanied by caution among sovereign wealth funds, investment institutions, and some portfolios in injecting new liquidity or altering their positions until there is more clarity in the financial markets, he went on to say.

Moreover, Al-Khalidi said that the Saudi stock market has not accurately reflected the true strength and size of the Saudi economy, which has grown to SAR 4 trillion, up from SAR 600 billion in 2016, before the launch of Vision 2030.

Additionally, the country’s GDP has reached approximately $1.1 trillion.

Looking ahead to the market's performance in the coming week, he noted that there are strong support levels at 11,550 points, followed by 11,450 points.

These levels could help shift the market toward an upward trajectory and better reflect the robust growth of the Saudi economy.

Al-Khalidi emphasized that the banking and energy sectors could play a leading role in driving the market higher, pushing the index beyond this week’s closing levels.

He also pointed out that some stocks are hitting new lows, presenting significant investment opportunities for those seeking safe havens with steady returns in the Saudi market.