Why is the Egyptian Pound testing new lows? - Economy

Al-Ahram Weekly

12-04-2025

Amid global market volatility and mounting domestic economic pressures, the Egyptian pound (EGP) is undergoing one of its most sensitive phases since the 2016 currency floatation.
In the first week of April, the EGP hit a historic low against the US dollar, dropping to EGP 51.67/1 USD, before recovering slightly to EGP 51.24/1 USD. This raised broader questions: Is this fluctuation a natural market response, or part of a deliberate strategy by the government to reprice the pound?
Egypt is committed to a flexible foreign exchange (FX) regime as part of its $8 billion loan deal with the International Monetary Fund (IMF). This means the EGP is vulnerable to further devaluation, especially amidst unprecedented global and regional challenges.
Capital
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"What's happening isn't surprising — it's the inevitable result of six core factors, ranging from foreign investment withdrawals, domestic pressures, and external obligations, to rapidly evolving global political and trade contexts," banking expert Hani Mamoun explained to Ahram Online.
In December, Prime Minister Mostafa Madbouly disclosed that Egypt's financing needs were around $22 billion.
Fitch Ratings recently affirmed Egypt's B credit rating with a stable outlook, while S&P Global revised the country's outlook from "positive" to "stable," citing newly imposed US tariffs and regional geopolitical tensions as factors that could impact Egypt's ability to meet its financing obligations.
Despite reassurances from Madbouly that the EGP operates under a free-floating regime, market reactions have been less optimistic. Foreign capital outflows have intensified, directly pressuring the local currency — a development the government acknowledged in a recent cabinet meeting.
Mamoun confirmed that 'foreign withdrawals from government debt instruments, such as treasury bills and bonds, are one of the key factors driving demand for the US dollar.' When foreign investors exit, they demand their money in hard currency, exacerbating the gap and affecting the exchange rate.
A persistent financing gap
Banking expert Ahmed Shawky told Ahram Online that the pressure on the EGP isn't only due to capital outflows but also a persistent financing gap of $20–22 billion. Despite international pledges from the IMF, the Resilience and Sustainability Fund, and two tranches of European Union financing, this gap remains largely unfilled.
According to previous IMF estimates, Egypt's total financing gap stands at about $28.5 billion, factoring in inflows from the Ras El-Hekma deal and boosted reserves. Shawky noted, 'Even after expected inflows, only about $12 billion will materialize, meaning pressure on the EGP will persist until Egypt secures more sustainable financing sources.'
Global trade tensions amplify external pressure
Global trade tensions are also influencing Egypt's currency pressures. Following US President Donald Trump's imposition of aggressive tariffs on Chinese goods, and China's retaliatory tariffs, capital flows worldwide have been disrupted, sending investments into safe havens like the US dollar and gold.
Mamoun remarked, 'Capital doesn't move based on sentiment—it moves out of concern. Trump's decisions triggered global turbulence, pushing everyone toward the dollar and intensifying pressure on the pound, especially due to Egypt's strong ties to global fluctuations.'
Seasonal pressures contribute to currency
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Domestically, seasonal factors exacerbate the strain. The holy month of Ramadan typically sees a surge in imports of food and consumer goods, increasing demand for dollars. In March, Egypt's headline inflation rate accelerated to 13.1 percent, up from 12.5 percent in February, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).
Once Ramadan ends, the Hajj season creates another spike in demand, as currency conversion to the Saudi riyal rises to cover the costs for over 100,000 Egyptian pilgrims annually. Mamoun added, 'Seasonal demand creates extra pressure on foreign currency and fuels parallel market activity, especially when demand isn't fully met through official channels.'
Currency
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Interestingly, some experts view the pound's devaluation as not just a result of macroeconomic pressures, but as a strategic tool to attract foreign investment and stimulate exports.
Following the government's move to transfer five companies from the National Service Projects Organization (NSPO) to the Sovereign Fund of Egypt (TSFE) in preparation for privatization, speculation grew that the pound's drop was intended to make Egyptian assets more appealing to foreign investors.
Mamoun confirmed this view: 'As the EGP weakens, state assets up for sale become more attractive to foreign investors. We saw this in previous valuations, like the Banque du Caire potential sale. A weaker EGP also improves export competitiveness.'
On the other hand, Shawky offered a more balanced perspective, suggesting that the current fluctuation is not an unchecked devaluation, but rather a calculated move within flexible margins.
He noted that foreign reserves remain above $47.7 billion, and the government is turning to alternative financing tools, such as sovereign sukuk and dollar bond issuances, while expanding investment partnerships in sectors like energy and real estate.
Shawky also pointed out that falling Brent crude prices, which have dropped below $65 compared to the $82 benchmark in Egypt's national budget, indirectly support the pound.
'Every drop in oil prices saves the government millions of dollars monthly, providing more room to meet market needs without adding pressure on the exchange rate,' he explained.
Could the
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ollar
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xceed
EGP
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Looking ahead, both Shawky and Mamoun agreed that the EGP could fluctuate between EGP 52 and 53 per dollar through June, barring any significant political or economic events.
However, international institutions warn that further dollar appreciation is possible, particularly amid continued financing uncertainties and delays in implementing IMF-mandated reforms.
While the outlook is relatively optimistic, the experts cautioned that geopolitical instability remains a significant risk, particularly with ongoing regional tensions and unmet external obligations.
Mamoun and Shawky concluded their remarks by noting that the government is actively working to bolster reserves in anticipation of any regional escalation. 'The risks aren't just economic — they involve national security and critical supply chains as well.'
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