Egypt’s markets are bracing for a major development in the dollar exchange rate after the country’s central bank increased its price by EGP0.1 to EGP7.93 instead of EGP7.83 in light of lower dollar-denominated supply and government’s pursuit of foreign borrowing.
The central bank’s move came after the country’s foreign currency reserves slumped by $1.7 billion in September to stand at $16.3bn compared with $18.1bn in August, according to a report published by the London-based Al-Hayat newspaper.
The bank said the major monthly decline in the country’s dollar reserves was a result of repaying US-guaranteed $1.25 bonds in addition to an interest of $27.8 million.
Lower exports, higher imports and shrinking tourism revenues and foreign investments are other main factors that pushed the country’s reserves down, according to the bank.
Prominent Egyptian economist and former adviser to the International Monetary Fund, Fakhri al-Faqi, said Egypt’s central bank had two options: increasing the dollar price in a manner that significantly affect inflation and the poor, or injecting more dollars into the market. However, the second option would impact the country’s credit rating in the future, he adds.
He notes that the Egyptian government is currently negotiation with the World Bank for a $3bn loan with a repayment period of 28 years.
($1 = AED3.67, at the time of publishing)