Weakened Egyptian pound to lure investors

28 January 2015

Pound falls once more to 7.43 against the dollar

The depreciation of the Egyptian pound is set to attract more foreign investors to consider opportunities in the North African country, analysts say.

The pound fell to a new low of 7.43 against the dollar on 26 January, following the latest foreign currency auction held by the Egyptian Central Bank. On the 21 January, it had declined to 7.39 against the dollar, which was the weakest the currency had been since 2012.

The central bank’s decision to allow the currency to weaken was a widely anticipated move, as Egypt continues to struggle with low foreign reserves, a high budget deficit and uncompetitive exports.

“It is something that looked inevitable,” Paul Gamble, director, sovereign group at US ratings agency Fitch Ratings, tells MEED.

The devalued Egyptian pound is expected to boost exports, fuel job creation, develop the tourism industry and attract foreign direct investment (FDI).

It is anticipated the Egyptian central bank will continue to let the pound decline until it narrows the gap between the official and the unofficial, or black market, rate that has emerged in recent years.

The Washington-based IMF recommended last November that Cairo should develop a more flexible exchange rate policy and avoid the real appreciation of the currency to improve the availability of foreign exchange and attract FDI.

“Uncertainty around the exchange rate has been holding back foreign investors from considering Egyptian debt and equities. If you remove some of this uncertainty you should see more inflows,” says Gamble. “This is particularly the case with debt. Investors were wary that high yields gained from Egyptian debt would be offset by potential falls in the currency.”

The country is preparing to host an economic summit in Sharm el-Sheikh in March, where it will present investment opportunities to the global and regional investor markets.

The decision to depreciate the currency is thought to be partly linked with the conference and the need to create an attractive business environment for investors.

Cairo has also been implementing other reforms designed to encourage investment, such as subsidy cuts and reforms to the country’s taxation system.

Follow Rebecca Spong on Twitter: @Rebecca_MEED 

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