Egyptian pound strengthens on black market

03 November 2016

Price of Egyptian pound against dollar on unofficial market reached £E15 on 3 November

The price of the Egyptian pound on the black market has strengthened against the dollar, following highs of £E18.4 on 1 November.

The price of the pound against the dollar on the unofficial market reached £E15 on 3 November, as black-market traders held back on buying and selling following an announcement from Prime Minister Sherif Ismail that the central bank will issue new measures regarding the exchange rate.

The price has also been affected by reports that Cairo has agreed a $2.7bn currency swap deal with the Chinese ahead of a planned devaluation leading up to the expected $12bn loan deposit from the IMF.

Black-market traders have been buying dollars at £E17.5-£E17.8 and selling them to importers at £E18, representing a two-pound slide in a single week and a five-pound slide on the month, despite a fixed bank rate of £E8.8, explains a local banker.

Egypt’s black market has become the only source of foreign currency for many importing industries that have found central bank limitations on currency withdrawals difficult to manage.

Egypt’s currency woes are caused by a shortage of hard currency, predominantly caused by declining revenues from tourism, the Suez Canal and foreign direct investment (FDI).

Tourism was served a major blow in October 2015, when a Russian passenger jet was downed by Islamic militants operating in the Sinai region. Since then, Egypt has failed to attract the number of tourists it needs. Tourism revenues were only $5.9bn in 2015, compared with $7.3bn in 2014. Figures for 2016 are expected to be lower than 2015 and far from the figures seen before the 2011 uprising, with the country raking in $12.5bn in 2010.

FDI has also been stagnant as Egypt fails to update key investment laws needed to attract the level of investment it promised in 2015.

The authorities have said a second round of devaluation is imminent once foreign reserves hit $25bn, although there is no indication of what the new bank rate will be. Local businesses and analysts have previously told MEED the bank must float the currency rather than devalue it.

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