Why Egyptians can splurge abroad again
cairo — Egyptian banks are lifting restrictions on customers’ overseas credit card purchases, the latest indication that a foreign-currency crunch that crippled the economy is easing.
State-run Banque Misr, Egypt’s second-biggest lender, is removing curbs imposed last year on purchases, while keeping limits on foreign-currency cash withdrawals, the official Middle East News Agency (Mena) reported without giving details. It follows similar moves by the National Bank of Egypt and Commercial International Bank, Mena said.
Egyptian banks restricted the usage of credit cards last year, amid accusations they were being used to circumvent official measures to tame a black market that was both a product of — and contributing to — the currency shortage. The crisis began to abate in November, when the central bank floated the pound and raised rates, helping to secure a $12 billion International Monetary Fund loan that opened the door for foreign investors to return.
Banque Misr’s decision is another sign that the foreign-exchange problems “have finally been dealt with and started to fade”, said Jason Tuvey, Middle East economist for London-based Capital Economics. “We’ve seen a sharp increase in foreign-exchange reserves, and there’s been a flow of dollars that was in the black market moving into the official banking system.”
Egypt’s net international reserves have risen to their highest level in six years, while overseas holdings of Egyptian government debt have roughly tripled since January as investors returned after the float, which weakened the pound by more than half against the dollar. Dollar sales to banks have exceeded $21 billion, Mena cited central bank deputy governor Gamal Negm as saying.
Egypt’s economic recovery, though, is far from complete. The weaker pound helped to drive inflation above 30 per cent in a nation where around half of the 92 million residents live near or below the poverty line. That has left officials trying to balance how to stimulate growth while curtailing price increases. They received some good news on Wednesday as data showed monthly gains slowed for a third month, signaling that inflation may be peaking.
BMI Research, a division of Fitch Ratings, expects Egypt’s economic reforms to weigh on growth, it said in an emailed report this week. Gross domestic product will expand 2.8 per cent this fiscal year and 4.1 per cent next, compared with the government’s target of four per cent and 4.6 per cent respectively.
“Rising investment will not be sufficient to offset the negative impact of high inflation on private consumption,” BMI said in the report. While inflation has likely peaked, measures including subsidy cuts will continue to squeeze consumers and businesses, it said.
IMF officials are currently in Cairo to monitor the government’s progress on its economic plan and to discuss the release of the second tranche of the loan. — Bloomberg