Egypt to al­low its cur­rency to float freely

Malta Independent - - WORLD -

Egypt will float its cur­rency in a move that is ex­pected to see it fall by al­most 50% against the dol­lar.

The price is ex­pected to see one US dol­lar buy­ing 13 Egyptian pounds, up from the nine Egyptian pounds the cen­tral bank was try­ing to keep it at.

The coun­try’s cen­tral bank said the move was one of a list of re­forms de­signed to strengthen con­fi­dence in the econ­omy.

Egypt’s main stock in­dex jumped by more than 8% on Thurs­day.

The cen­tral bank has also increased in­ter­est rates by 3 per­cent­age points to 14.75%.

The move is a key re­quire­ment of the In­ter­na­tional Mone­tary Fund, from which Egypt is ask­ing for a $12bn loan over three years.

The IMF’s mis­sion chief for Egypt, Chris Jarvis, said the move would make more for­eign ex­change avail­able and would “help fos­ter growth, job cre­ation and stronger ex­ter­nal po­si­tion for the coun­try”.

Although the lib­er­al­i­sa­tion should help the coun­try to strengthen its econ­omy, it will make life harder for Egyp­tians and the cost of all im­ported goods will rise sharply.

An­other re­form it is facing is re­duc­ing or re­mov­ing al­to­gether state sub­si­dies on fuel to meet IMF con­di­tions. It has al­ready cut sub­si­dies on house­hold elec­tric­ity and increased the price of sugar by 40% for some Egyp­tians.

Egypt im­ports about a third of its sugar needs but a short­age of hard cur­rency has meant traders have strug­gled to buy from out­side the coun­try.

The mil­i­tary has been told to dis­trib­ute a one-off pack­age of ba­sic food items, in­clud­ing sugar, at half price, to cushion the ef­fect among the poor­est.

Egypt has strug­gled to at­tract for­eign in­vest­ment since the po­lit­i­cal tur­moil in 2011 dur­ing the so-called Arab Spring that saw for­mer pres­i­dent Hosni Mubarak over­thrown.

The change of regime dented tourism num­bers, one of Egypt’s most im­por­tant for­eign cur­rency earn­ers, and prompted a gen­eral fall in in­ter­na­tional in­vestor con­fi­dence.

The de­cline in hard cur­rency in­come was ex­ac­er­bated by the cen­tral bank’s ef­forts to prop up Egypt’s own cur­rency. It was try­ing to hold it at the of­fi­cial rate of 8.88 Egyptian pounds, although on the black mar­ket deal­ers could buy far more Egyptian pounds.

The bank said in a state­ment it had moved to a “lib­er­alised ex­change rate... to cre­ate an en­vi­ron­ment for a re­li­able and sus­tain­able sup­ply of for­eign cur­rency”.

A cen­tral bank auc­tion of dol­lars will be held later on, al­low­ing sup­ply and de­mand to de­ter­mine the value of the pound for the first time in decades.

Banks will be al­lowed to open their branches un­til 9pm and over the week­end to al­low more trans­ac­tions.

Egypt’s econ­omy is the sec­ond largest in the Arab world, af­ter Saudi Ara­bia.

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