A state of anger and frustration prevailed on social media sites in Egypt after the announcement of the liberalization of the exchange rate of the pound, to drop by about 6% and fall to an exchange rate of 22 pounds to the dollar.
Angry tweets poured out, mixed with mockery of the “bad economic situation” that Egypt has reached, and of the burden that will be placed on the citizen in the coming period in light of the prediction of more waves of price hikes.
On the other hand, some tweeters were optimistic about the liberalization of the exchange rate, and stressed that this would open the door for foreign investments in Egypt.
Experts said that this step “will reflect negatively on the Egyptian economy and the greatly exhausted citizen.”
The Egyptian pound lost nearly 6% of its value, and its exchange rate decreased to 22 pounds per dollar, with expectations of a further decline in the coming period.
The decline came after the Central Bank of Egypt’s decision to start liberalizing the exchange rate and raising the interest rate by 2%, as well as the gradual abolition of the import documentary credit system. The price of the pound before the recent decisions of the Central Bank of Egypt was 19.65 pounds per dollar.
In a statement, the Central Bank of Egypt announced an increase in interest rates by 200 points, bringing the overnight deposit and lending rates to 13.25 percent and 14.25 percent, respectively.
The CBE said in a statement, “It is expected that the increase in global and local prices will lead to an increase in the general inflation rate than its target by the CBE, which is 7% on average during the fourth quarter of 2022.”
- The Egyptian government announced that the International Monetary Fund granted it a loan of $3 billion.
- At the same time, the Egyptian government announced a 15% devaluation of the Egyptian pound, in response to the request of the international institution that stipulated this before agreeing to grant Egypt this loan.
- Egypt, according to Moody’s, is one of five countries in the world at risk of failing to repay its foreign debt payments, which are more than 150 billion US dollars.
- Last August, Goldman Sachs said that Egypt “needs about $15 billion to be able to repay its debts.”
- This is the third time that Egypt has resorted to the International Monetary Fund, having previously done so twice in the past six years.
- The first time was in 2016, when it secured a $12 billion credit facility to support an ambitious program of economic reforms.
- The second time was when it received a $5.2 billion loan to mitigate the economic impact of the Corona pandemic.
Prime Minister’s announcement
Egyptian Prime Minister Mostafa Madbouly said during a press conference with representatives of the International Monetary Fund and the Governor of the Central Bank, that “the Egyptian economy is achieving stability and steadfastness.”
He added, “The agreement includes $3 billion from the International Monetary Fund, $1 billion from the International Monetary Fund’s sustainability program, and 5 billion from international partners, with a total of $9 billion that will support the Egyptian economy during the coming period as part of an aid package to support the Egyptian economy.”
Opponents of the decision
And through social networking sites, tweeters expressed their anger at the liberalization of the exchange rate for the Egyptian pound, and confirmed their belief that “the coming days will witness a significant rise in prices that most Egyptians are now complaining about.”
While some questioned “the reason for the increase in salaries approved by the Egyptian government one day before the flotation of the pound.”
Some of the tweeters also met the news with sarcasm and sarcasm.
Supporters of the decision
On the other hand, tweeters were optimistic about the decision, saying that it “is in the interest of the Egyptian economy.”
Another group pointed out that “sustenance is in the hands of God alone and has nothing to do with the rise or fall of the pound.”
Experts: “The move is a huge burden on the citizen in light of the increase in inflation”
BBC Trend spoke with Mamdouh Al-Wali, the economist and deputy editor-in-chief of the Egyptian newspaper Al-Ahram, to understand the impact of what happened today on the Egyptian economy.
– Do you Was this move a surprise?
“The liberalization of the exchange rate was not a strange matter, but it was expected for months in light of negotiations with the International Monetary Fund to obtain a loan.”
“The central bank had already reduced the pound’s exchange rate last March by 16%, but this did not convince the fund, and it kept calling for a further reduction in the pound’s exchange rate against the dollar, to bring about the decline we witnessed today by about 14%.”
“This is not definitive because in 2016, when the pound was floated, the price on the first day was not reflective of the real exchange rate, it changed in the following days. Thus we are facing a decline in the current year of the pound against the dollar by 43%.”
– What is the impact of this on the Egyptian economy?
“It will certainly cast a shadow over everything, as it was mentioned in the economic conference that was held the past two days, all the industrial components used in all Egyptian industries that are imported from abroad, and their percentage reaches more than 60%, will increase in price.”
“This will lead to an increase in the cost and consequently a rise in the prices of Egyptian products, whether manufactured for the local market or for export. As well as food products and consumer goods that are imported will increase their prices.”
“The inflation index issued by the Statistics Authority will also rise, despite experts’ reservations about the quality and realism of this indicator, but it continued to rise to 34% in July 2017, and remained high throughout 2017 and 2018, and did not decline until 2019.”
– Why, then, was the Egyptian pound floating?
“Because this was a condition for the International Monetary Fund to grant Egypt the new loan that it requested.”
“Since 1962, when Egypt began borrowing from the International Monetary Fund, this has always been accompanied by a decrease in the exchange rate of the pound against the dollar, and this was part of the agreements that were made, whether during the era of President Gamal Abdel Nasser, Anwar Sadat or Hosni Mubarak.”
– Why does the IMF follow this policy with those who request loans?
“This policy is always pursued by the IMF with developing countries that request loans from it, as it considers that the Central Bank of Egypt was interfering in setting the exchange rate of the pound in an administrative manner, and this has already happened, so there was almost a relative stability in the exchange rate of the pound during the past two years until March 2022, after which the gradual reduction that occurred today began.
– How do you see the future of the Egyptian economy in light of what happened today?
“The problem caused by the Central Bank, in February of this year, to shift from collection documents as a means of financing imports to the documentary credit system.”
“The investors’ complaint about it makes them receptive to the new price, because they were asking for any price so that they could import production requirements and release the imported goods piled up in the ports since last February, which they found very difficult to release, and therefore they welcome any exchange rate until the wheel turns.” production again in their factories.
As for the ordinary citizen, his suffering will increase, especially since there is an increase in inflation, which has reached 18%, a percentage that makes all the returns offered by Egyptian banks negative, because it exceeds the percentage of these deposits, especially after what happened today.
– Will the devaluation of the pound really open the door for foreign investments in Egypt?
“This was said in the official propaganda for floating the pound, and this is what is said every time. It is the same as what was said in 2016 during the devaluation of the pound, and imports will decrease, increasing local industries, and then increasing foreign direct investment rates.”
“But the accurate follow-up of the figures announced by the Central Bank of Egypt since 2016 until now has not proven this at the scientific level.”
“If there was an increase in exports, there was a greater increase in imports, and thus the percentage of the Egyptian trade deficit increased than it was in 2016.”