Egypt’s poor fret over prospect of currency float
Cairo - Poorer Egyptians fear they will be especially hard pressed should the Central Bank of Egypt allow the Egyptian pound to float freely on the currency markets.
The pound flotation is a condition for Egypt to receive a $12 billion loan from the International Monetary Fund (IMF) to strengthen Cairo’s foreign currency reserves and gain investor confidence.
“All measures taken by the Central Bank show that the pound fluctuation is imminent,” economist Rashad Abdo said. “The pound flotation is indispensable for economic reform in Egypt.”
The Egyptian pound has been losing value to the US dollar over recent months with a greenback now selling for 15 pounds on the black market. In January, the Central Bank devalued the pound by 30% putting the official exchange rate at about 8.88 pounds to the dollar.
But Egypt’s controlled foreign exchange regime created a parallel market that has functioned as a magnet for dollars held by Egyptians and billions of dollars sent in remittances by Egyptians working abroad, depriving the state treasury of US dollars.
Foreign currency reserves at the Central Bank stand at $19.6 billion but they are not nearly enough to satisfy import-dependent Egypt’s needs for more than a few months.
Central Bank officials were reluctant to talk about floating the pound, sometimes denying such a plan. However, IMF Managing Director Christine Lagarde recently said Egypt had “almost completed” the actions required for the IMF’s board to review its $12 billion loan accord, although some measures related to the exchange rate and subsidies were still pending.
Egypt has slashed water, electricity and energy subsidies. It is about to cut transport subsidies and plans to restructure its food subsidy regime, which benefits more than 70 million Egyptians — more than three-quarters of the country’s population.
Abdo said he expects the pound flotation to be made by the end of the year.
Many fear the move would send prices of basic commodities shooting up, resulting in the impoverishment of millions of people.
“The pound flotation will be catastrophic for millions of people who will have to bear the brunt of such a move,” said Fayqa al-Rifae, a former Central Bank deputy governor. “Apart from raising the cost of imports, the flotation will raise commodity prices in the local market, which will cause public resentment.”
Commodity prices have increased almost 40% in the last six months and the flotation regime is expected to raise prices even more. Commodity prices have already risen on news of the flotation, ushering in calls for revolt. More Egyptian citizens report an inability to buy essential items and there are expectations that Egypt’s poverty rate will rise.
More than 27% of Egyptians are considered poor, an increase of about 1.5 million people since 2013. More people are expected to fall into poverty as Egypt adapts to IMF loan conditions.
This is fuelling nationwide anger, pitting the regime of President Abdel Fattah al-Sisi against millions of hungry Egyptians. There are calls for a popular uprising on November 11th against Sisi’s new economic measures.
To ease public anger, Sisi has promised to impose tighter control on the markets, stabilise prices and instruct the army and other state institutions to offer the public essential goods at reduced prices. But his previous calls for such measures never came about and prices continued to increase.
A kilogram of rice sells for about 90 US cents, up from 45 cents eight months ago. A kilogram of red meat, $9 last February, now sells for $13.
Economist Mukhtar al-Sherif said Sisi had a lot of work to do to ensure that public resentment at commodity prices and deteriorating living conditions will not translate into public action that threatens his government.
“Apart from investing more in social welfare programmes, the government needs to impose very tight control on the market to ensure that commodity prices do not rise in a way that makes millions of people incapable of buying their needs,” said Sherif, an economics professor at al-Azhar University. “The government also needs to end monopolies and open the door for more competition in the market, which will benefit consumers.”