(Bloomberg) -- Egypt’s pound has slipped to its lowest level since a devaluation in March, amid a broad sell-off in emerging markets and increased local demand for dollars.
The pound is trading at about 49.8 against the US currency, its weakest since Egypt let it plunge nearly 40% in a bid to attract foreign funding and stem a two-year economic crisis.
The depreciation comes as the International Monetary Fund and Egyptian officials discuss the government’s progress in meeting reform targets of an $8 billion loan package. On Wednesday, the Washington-based lender cited “substantial progress,” but said further talks are needed over the coming days before it passes the next review, which would unlock a $1.3 billion tranche.
Egyptian Prime Minister Mostafa Madbouly said discussions this month in Cairo were “positive” and the IMF’s review should be completed in the next two days.
In a statement, the IMF said the central bank reiterated its commitment to a flexible exchange rate. Before March’s devaluation, the pound was kept steady for about a year and became, in the eyes of global traders, significantly overvalued, deterring foreign inflows and investment.
Since May, the pound’s down almost 5% against the dollar, roughly in line with other emerging-market currencies.
“Our assessment is it is just a matter of time to clear some issues here and there and then soon we’re going to wrap up this review,” Mohamed Abu Basha, head of research at Cairo-based investment bank EFG Hermes, said on Bloomberg Television on Thursday.
The IMF urged Egypt to accelerate plans to sell government-controlled assets and “speed up reforms to level the playing field and reduce the state footprint in the economy.” In addition, it wants Egypt to reduce some tax exemptions — particularly when it comes to value-added tax — to increase revenue.
It also said authorities agreed on the need to bolster Egypt’s social-safety net as subsidies on fuel and food are lowered.
March’s devaluation, and a hike in interest rates to slow inflation of around 36%, helped Egypt more than double a loan deal already in place with the IMF. The financing is part of a vast global bailout for the country kickstarted by a $35 billion investment from the United Arab Emirates.
The central bank’s Monetary Policy Committee meets Thursday and is expected to hold its key interest rate at 27.25%. Most economists foresee it will delay the start of cuts until around March.
The pound’s fall in recent weeks is partly a result of the central bank “easing restrictions” on businesses buying foreign exchange, according to Farouk Soussa, Goldman Sachs Group Inc.’s Middle East and North Africa economist.
At the end of October, Egyptian banks were able to provide dollars more freely to clients. Before then, lenders had to obtain central bank approval to sell foreign exchange to some sectors of the economy, including vehicle and furniture importers.
In recent days, foreign demand for the pound has also dropped due to global factors, Soussa said.
“Investor sentiment in emerging markets is fragile at the moment,” he said, citing escalations in Russia’s war on Ukraine and a stronger dollar since Donald Trump won the US presidential election.
--With assistance from Kerim Karakaya and Tarek El-Tablawy.
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