The Egyptian pound reaches new highs and lows
What does the rise in foreign reserves mean in Egypt, despite the falling pound? Ahmad Abdul-Rahman explains
Despite the wave of huge losses afflicting the Egyptian pound against the US dollar, the Central Bank of Egypt (CBE) said that net international reserves rose to USD 33.53 billion at the end of last November, compared to about USD 33.41 billion at the end of last October, an increase of about USD 12 million – or a rise of 0.35 per cent.
The increase in Egyptian foreign exchange reserves comes at a time when the Egyptian pound is facing severe losses against the dollar, amid speculation of the pound's dollarisation.
The CBE had also said that the Egyptian government was able to pay foreign debt installments and debt interest at a value of USD 6.25 billion during the last quarter of the fiscal year 2021/2022. The total amount paid by the Egyptian government in terms of debt interest and installments on foreign debt amounted to about USD 26.2 billion during the past fiscal year.
The data shows that the burden of debt service was divided into installments of USD 5.05 billion, with interest amounting to USD 1.2 billion during the fourth quarter of last year. The CBE showed that about USD 21.7 billion in loan installments were paid during the entire fiscal year, in addition to USD 4.5 billion in interest paid on loans.
Violent developments since the January 2011 revolution
In terms of Egypt's foreign exchange reserves, the country has witnessed difficult developments since the January 2011 revolution. The first shock the foreign exchange reserves received after the revolution was when they declined in volume terms from the level of USD 36 billion to about USD 13.424 billion in March of 2013, a decrease of 63 per cent.
In the period following June 2013, Egypt received aid from a number of Arab Gulf countries, including Saudi Arabia, the UAE and Kuwait. This aid included deposits, grants and development funds to support the Egyptian economy.
From the end of 2014 until the end of 2019, the foreign exchange reserves witnessed successive annual increases. It increased from USD 15.3 billion to USD 45.4 billion, an increase of about 197 per cent, before reaching its highest levels ever at USD 45.515 billion in February 2020 - before the coronavirus pandemic.
However, Egypt's foreign exchange reserves declined by USD2.12 billion last June, bringing its total loss to about USD 7.2 billion during the 2021/2022 fiscal year. This decline occurred as a result of the Ukraine crisis, which necessitated the use of part of the reserves, especially in the last four months of the year.
This led to the exit of foreign investors from Egypt. Hence, in a statement a few days ago to Al-Arabiya channel, the Egyptian Finance Minister, Mohamed Maait, said the foreign investments withdrawn from the country are estimated to be about USD 22 billion.
Slight rise
Since the beginning of this year, gold prices have also skyrocketed, coinciding with the losses in the Egyptian pound. The value of the Egyptian currency against the US dollar has declined by 56.4 per cent since the beginning of this year. But the exchange rate of the dollar against the Egyptian pound also increased from the level of 15.74 pounds at the beginning of 2022, to the level of 30 pounds now.
The Egyptian pound has also witnessed a decline since the CBE's decision last October to use a flexible rate policy for the pound against the dollar. At the end of last month, the Egyptian government announced that it had reached an agreement on a financing package worth USD 9 billion, including 3 billion from the International Monetary Fund (IMF), which stipulated the liberalisation of the dollar exchange rate, completely leaving the price to the forces of supply and demand.
Economic analyst and professor at the American University in Cairo, Hani Genena, said that the rise in foreign exchange reserves at the CBE is a good thing, although it is slight. Genena said that the increase in foreign exchange reserves with the CBE means that the reserves has not been depleted even though there is the current dollar shortage crisis.
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