In this article Ahmad Abdel-Rahman explains how the Egyptian pound has strengthened against the US dollar over the past year.
From the beginning of 2021 until the beginning of 2022, the Egyptian pound has held up against the US dollar. The value of the US dollar, which is determined by supply and demand, now stands at EGP15.66 per one dollar.
Amid the growing confidence in the Egyptian economy after the implementation of the economic reform programme, and the waning of the impact of the coronavirus on the economy, the value of the US currency is expected to decline against the pound.
Overall, the supply of the US dollar in Egypt increased while demand fell. This was against the backdrop of a significant increase in hard currency in the Egyptian economy. The abundance of US currency in Egyptian banks is one of the most important factors supporting the strength of the Egyptian pound.
There are also a number of other reasons why the Egyptian pound was strong These are: a significant rise in remittances from Egyptians working abroad; an increase in foreign investments in the debt instruments held by the Egyptian government; the recovery of the tourism sector revenues; the rise in exports and an increase in revenues for the Suez Canal.
The Egyptian currency has also strengthened because the black market for the currency has ended. This follows the decision to liberalise the exchange rate, and "dollarisation" operations, that means transferring deposits from the Egyptian pound to the dollar. The Egyptian pound has also strengthened because international bonds denominated in dollars and euros have been issued to Egypt. This has averaged about USD 7 billion annually.
The Egyptian economy has strong indicators
All the indicators of the Egyptian economy were strong. Foreign exchange inflows rose significantly to USD 500 million on some days. This includes investment funds to financial portfolios. Remittances from Egyptians working abroad rose to a record USD 21.4 billion in the last eight months of 2021 to about USD 29.6 billion. These remittances are one of the most important pillars of the Egyptian economy, especially for acquiring hard currency.
Another USD10 billion of foreign direct investment has also been injected into the Egyptian economy and USD3 billion was saved as a result of importing gas in 2021. Moreover, with work on the new gas fields, greater amounts will be saved.
The net foreign reserves of the Central Bank of Egypt rose to a record USD 40.849 billion at the end of October 2021, compared to USD 40.825 billion at the end of September 2021, an increase of about USD 24 million.
Egypt has also had a successful banking reform programme which began in 2004 and ended in 2008. This included conducting some privatisation and merging operations, bringing the number of banks to 39 from 57. The issue of problem debts was also confronted; public sector banks were restructured financially and administratively, and the monitoring and supervision sectors came under greater scrutiny. Egyptian banks also have strong capital bases and significant foreign assets.
Although the Covid-19 pandemic is one of the biggest shocks to hit the global economy in recent years but the Egyptian economy has stood up well to date, including dealing with the spread of new mutations. Despite the continuing negative effects of the coronavirus pandemic- estimated to have cost the world economy USD11 trillion so far with millions of jobs lost- the Egyptian government has struck a balance between controlling the spread of coronavirus and opening the economy.