Good constantly! Egypt's development situation may face change

The Bank of Egypt officially informed the production enterprises that the payment of Egyptian pounds into US dollars will be resumed from now on, and the payment will be completed within two weeks after the information is submitted. This undoubtedly reveals a positive signal: the shortage of foreign exchange that restricts Egypt's economic development has been greatly improved, and the current currency has achieved stability to provide support.

 

 

Photo by Xinhua News Agency reporter Ahmed Goma

Real money poured in and the foreign exchange environment improved rapidly

In February this year, Egypt and the United Arab Emirates reached the "largest foreign direct investment agreement in history", bringing "timely rain" of foreign exchange to Egypt ". Egyptian Prime Minister Madbouli said that after the implementation of the agreement, 35 billion US dollars of foreign direct investment will be injected into the Egyptian economy within two months.

On March 18, Egyptian Minister of International Cooperation Rania announced that within the framework of the long-term strategic partnership between the World Bank and Egypt, in order to support Egypt's economic reform measures and achieve Egypt's economic recovery and comprehensive sustainable development, the World Bank plans to provide Egypt with US $6 billion in the next three years, of which US $3 billion will be used to support the economic reform plan implemented by the government, and another US $3 billion will be used for private sector development.

The day before, on the 17th, Egyptian President Sisi announced at a joint press conference with European Commission President von der Leyen and other senior EU officials who were visiting Egypt: The EU has agreed to provide Egypt with 7.4 billion euros (about 8 billion US dollars). Financial support package to boost the Egyptian economy. He said that the financial package mainly involves three aspects of the Egyptian economy, namely preferential financing, investment guarantees, and technical support for the implementation of bilateral cooperation projects.

Or based on this, Goldman Sachs (Goldman) revised its forecast for Egypt's economic outlook, expecting Egypt to post a $26.5 billion external financing surplus over the next four years instead of the previously projected $13 billion expected deficit.

Interest rates float freely, economic reform takes a big step

On March 6, the Central Bank of Egypt raised interest rates by 600 basis points and said it would allow the exchange rate to be determined by the market to ensure a smooth transition to a flexible inflation targeting system. Two weeks later, the official exchange rate of the Egyptian pound has stabilized at around 49 Egyptian pounds to the dollar. Unlike a month ago, when the spread between the Egyptian pound and the official and parallel markets was more than double, the spread between the two is now largely flat and the foreign exchange market is relatively calm.

Analysts believe that the liberalization of the floating exchange rate will have the following impact on the Egyptian economy:

One is to create the conditions for the IMF loan agreement to be reached. Allowing the exchange rate to float freely was one of the conditions set by the IMF when it reached a $3 billion loan agreement with Egypt in December 2022. Since then, most of the loan amount has not been implemented because the pre-loan review conditions have not been met. On the same day that the exchange rate was liberalized, Egypt signed a new financing agreement with the International Monetary Fund, increasing the initial $3 billion loan to $8 billion.

The second is to increase the income of Egyptian remittances. Earlier, a large number of Egyptian expatriates abandoned remittances at the overvalued official exchange rate, resulting in a 30 per cent drop in remittances to $22 billion in the 2022-2023 fiscal year. This liberalization of exchange rate fluctuations and a sharp drop in the official exchange rate have weakened the basis for the existence of parallel markets and will greatly encourage Egyptian expatriates to remit money through official channels.

Third, it is good for foreign direct investment. Previously, the large exchange rate difference between the official exchange rate and the parallel market exchange rate hurt the enthusiasm of foreign investment. "When we exchange foreign exchange, we get the Egyptian pound at the official exchange rate, but the price at which we purchase the means of production with the exchanged Egyptian pound follows the parallel market exchange rate. It can be said that due to the exchange rate difference, the US dollar we invest is only equivalent to US $0.6." A person in charge of a Chinese-funded enterprise interviewed once told a reporter from Xinhua Finance. Now that the exchange rate gap tends to disappear, a big obstacle has been removed for all foreign investors planning to invest in Egypt, including the head of the company.

Next objective: to promote sustainable economic development

Egypt has secured sufficient funds for foreign exchange market liquidity.

Experts said that the Egyptian government's focus has changed from solving the problem of foreign exchange shortage to how to make full use of foreign exchange to achieve economic regulation goals and promote sustainable economic development.

Fakhri Fiki, Chairman of the Planning and Budget Committee of the Egyptian Parliament, believes that in order to ensure that there will no longer be foreign exchange shortages and high inflation in the short term, the Egyptian government needs to promote the development of export manufacturing to increase foreign exchange inflows and enhance the private sector in the economy. role.

Egypt's central bank governor, Hassan Abdullah, said that Egypt began to release the backlog of goods at the port, which is expected to help reduce the level of inflation in Egypt. Mohamed Etrebi, chairman of the Bank of Egypt and chairman of the Egyptian Banking Federation, said that the influx of foreign capital into the Egyptian banking industry is a positive sign, which means that the market's confidence in the Egyptian economy has quickly recovered.

The World Bank's country director for Egypt, Yemen and Djibouti, Stefana Gumbel, said the bank's financing will focus in part on helping Egyptian state-owned enterprises and creating a level playing field. The funds will also be used for social security projects and water and agricultural projects in Egypt.

The Egyptian government announced last year that it plans to earn US $191 billion by 2026 by gradually expanding the scale of the sale of shares in state-owned enterprises, implementing incentives to attract foreign direct investment, and relying on Suez Canal revenue, overseas remittances and commodity export revenue.

All measures, as the Central Bank of Egypt pointed out in a statement allowing the exchange rate to be determined by the market: the purpose is to curb inflation, eliminate the backlog of foreign exchange, and pave the way for sustainable economic development.

 

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According to Xinhua, Xinhua Finance, Global Times, reference news comprehensive report