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Al-Ahram Weekly
2 days ago
- Business
- Al-Ahram Weekly
A reckoning for the pound - Economy - Al-Ahram Weekly
A strong currency is one that trades where the world believes it should and stays there not by decree but by design. By any measure, Egypt's economy has been through a crucible. In just over a decade, the pound has seen four major devaluations from around LE6 per dollar in 2012 to over LE50 in 2025. Yet, currency values are not accidents. They are not mysterious or unfair. They are judgements that are brutal and often painful but that are rendered by the global and domestic markets on the integrity of economic policy. In March 2024, the Central Bank of Egypt (CBE), under intense pressure from the markets and in coordination with the International Monetary Fund (IMF), did what it had long resisted and allowed the pound to float freely. The pound then plunged more than 60 per cent overnight, but what followed was both instructive and oddly reassuring. After years of defending an overvalued currency often with borrowed reserves, capital controls, and rationed imports, Egypt stepped into a new era and one without illusions. The government's move was not only bold but essential. As economist Mohamed Al-Erian noted in the wake of Egypt's 2016 floatation, a functioning exchange rate is not a trophy; it is a signal. It tells investors whether they are welcome. It tells exporters whether they are competitive. And it tells citizens whether their government is willing to treat the causes of economic weakness rather than its symptoms. Since the 2024 floatation, the pound has recovered slightly and is now hovering near LE50 per dollar. The parallel market has disappeared, and the country's foreign reserves have risen to an all-time high of $48 billion. Inflation, though still elevated at around 13 to 14 per cent, is easing. The IMF has expanded its loan programme to Egypt to $8 billion. For the first time in years, investors both domestic and foreign are hearing a signal that makes sense. Yet, Egypt's long-term problem was never just the value of the pound. It was the belief that its value could be legislated, defended, or wished into strength. Over the last 70 years, the country has suffered no fewer than eight currency crises. Each time, the pattern has been the same: deficits widened, the pound became overvalued, the reserves fell, inflation soared, and the inevitable collapse arrived. Each time, the public bore the cost. Each time, the state vowed reform only to slip back into crisis-management mode. Egypt's exchange-rate policy can be described as a pendulum between liberalisation and defensiveness. And pendulums, unlike policies, do not move forward. What has changed today is not merely the floatation. It is, potentially, the philosophy. Egypt has joined the BRICS group of countries. It is exploring bilateral trade in local currencies with several other economies including India, China, and Russia. It is restructuring state assets, attracting Gulf investment, and cautiously privatising military-owned enterprises. Most importantly, it is pursuing a path where the exchange rate, for the first time, might reflect reality. But realism has a price. The next three years will test Egypt's ability to walk a narrow road. Forecasts expect the pound to stabilise at around LE50 to LE52 per dollar in 2025 and LE54 to LE56 per dollar in 2026 and 2027. All assume continued reforms and external financing. But all also flag risks. If the US Federal Reserve cuts rates in late 2025, Egypt could attract investment inflows. If global oil prices spike, the imports bill could bloat. If tensions re-escalate in Palestine, Sudan, Libya, or Yemen, tourism and Suez Canal revenues could fall. If any of these occur, the pound may revisit the LE60 mark or worse. The more constructive view, shared by some Egyptian economists, is that the pound is now undervalued. The post-floatation exchange rate likely overshot its equilibrium, opening room for recovery. Real interest rates, now positive, will support this. So too will a moderation in inflation, which is projected to fall to 12 to 13 per cent by the end of 2025 and single digits by 2026. That outcome is possible. But only if the state sustains its reforms. A 2018 study titled 'Identifying currency crises indicators: The case of Egypt' by Adams and Metwally found that Egypt's currency collapses were driven by five forces: an overvalued real exchange rate, low real interest rates, rising US rates, wide current account deficits, and political shocks. Four of those five are still active. What is different is the government's apparent commitment to break the cycle. The establishment of the Ebda Initiative for Industry, the renewed partnership with the IMF, and a willingness to let the pound find its level are steps in the right direction. But intentions are not immunity. Emerging markets do not become resilient through aid or appeals. They do so by building institutional trust. That means that Egypt must sustain a real flexible rate, not a managed shadow peg. It must reduce budget deficits not by cutting critical spending, but by rationalising subsidies and reforming procurement. It must attract foreign direct investment (FDI) with clarity, meaning guaranteeing property rights, level competition, and judicial fairness. All successful emerging markets, including Vietnam, India, and Indonesia, have faced this challenge. All have succeeded by welcoming investment with predictable, not perfect, policy. There is also room for innovation. Egypt could reduce its dollar dependency by expanding its local currency trade with partners. It could issue diaspora bonds pegged to inflation, offering Egyptians abroad a patriotic and financially sound way to invest. It could hedge oil and wheat imports on global markets, shielding itself from price spikes. It could allow broader use of inflation-linked contracts, enabling firms to plan with less foreign-exchange exposure. And it could create a stabilisation fund to save foreign-exchange windfalls from tourism or energy, using them to smooth currency cycles. None of these ideas is radical. They are simply underused. And they work. Importantly, none of this requires sacrificing exports. A stronger pound, if rooted in real productivity, better logistics, and smarter policy, will not hurt competitiveness. China, India, South Africa, Brazil, Germany, Spain, Switzerland, and Singapore have all built export power with flexible and even appreciating currencies. Egypt can do the same if it backs reforms with investment in skills, infrastructure, and governance. The danger lies not in strength, but in illusion. The economist Henry Hazlitt once warned that 'the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy.' Egypt has too often opted for the immediate: the fixed rate, the rationed dollar, and the borrowed reserve. It is time to think of the broader picture. The government's recent moves deserve recognition. Letting go of the pound's illusion of strength especially in a region full of currency anchors was an act of political courage. So was raising interest rates, restructuring public assets, and weathering the storm. There is much to commend in the CBE's recent clarity and the Finance Ministry's discipline. The public has shown remarkable resilience in absorbing the shocks. But courage now must be matched by consistency. Egypt's economy will not flourish because its currency is defended. It will flourish when its currency is trusted. That trust will be earned, not declared. And it will be sustained not by force, but by reform. The pound will hold its value when policies do. The illusion has fallen. That is cause for optimism not fear. The task ahead is to ensure that Egypt never again confuses the symbol of strength with its substance. A strong pound is not one that trades at seven or 15 or even 50 to the dollar. It is one that trades where the world believes it should and stays there not by decree but by design. The time for illusion has passed. The era of substance can begin. The writer is an economic advisor at the UK-based IBIS Consultancy. * A version of this article appears in print in the 29 May, 2025 edition of Al-Ahram Weekly Follow us on: Facebook Instagram Whatsapp Short link:
The National
4 days ago
- Business
- The National
IMF: Egypt making progress on reforms but must widen tax base
The International Monetary Fund on Tuesday said Egypt is making progress towards economic stability, but said authorities still need to widen the country's tax base. 'As Egypt's macroeconomic stabilisation is taking root, it is now time to accelerate and deepen the reform efforts to reduce the state footprint, level the playing field, and improve the business environment,' the fund said. An IMF staff mission held discussions with officials in Cairo from May 6 to 18 that could support the completion of the fifth review under Egypt's extended fund facility deal. The IMF approved an $8 billion agreement in 2024 after first agreeing to a $3 billion programme in 2022. 'Egypt has made substantial progress towards macroeconomic stability,' mission chief Vladkova Holler said in a statement. The fund said it had upgraded its economic growth forecast for Egypt for the 2024-25 fiscal year to 3.8 per cent. The Central Bank of Egypt last week said it expected real gross domestic product to increase by 4.3 per cent in the 2024-25 fiscal year after a slowdown in growth of 2.4 per cent in fiscal year 2023-24. While inflation slightly rose to 13.9 per cent in April, the fund noted it remains 'on a downwards trend'. The central bank cut also cut its key interest rates by 100 basis points last week due to accelerated economic growth and a downwards trend in inflation. It was the bank's second rate cut this year. Egyptian Prime Minister Mostafa Madbouly has previously said the country would implement more subsidy cuts on fuel, bread, diesel, electricity and water under the IMF programme. The fund said it welcomed officials' efforts to improve tax and customs procedures to increase efficiency and build confidence. The IMF also noted reforms are beginning 'to yield positive results'. 'Alongside these efforts, domestic revenue mobilisation will need to continue, mainly by widening the tax base and streamlining tax exemptions.' 'With the macroeconomic stabilisation now under way, it is critical for Egypt to carry out deeper reforms to unlock the country's growth potential, create high-quality jobs for a growing population, and sustainably reduce its vulnerabilities and increase the economy's resilience to shocks," it said. The fund said it would continue to hold virtual discussions on policies and reforms that could help support the completion of the fifth review.
Zawya
4 days ago
- Business
- Zawya
Egypt: Banque Misr suspends USD-denominated Al-Qema CDs, cuts return on EGP certificates
Arab Finance: The Assets and Liabilities Committee (ALCO) at Banque Misr has decided to suspend the issuance of dollar-denominated Al-Qema savings certificates (CDs) with prepaid interest in Egyptian pounds. The committee also decided to reduce the return on EGP saving certificates by 1%. these decisions are effective as of Tuesday, May 27th, 2025. This move follows the Central Bank of Egypt's (CBE) decision to cut key interest rates by 100 basis points (bp). © 2020-2023 Arab Finance For Information Technology. All Rights Reserved. Provided by SyndiGate Media Inc. (
Daily News Egypt
5 days ago
- Business
- Daily News Egypt
Germany, Egypt ink €118m finance deal, new €21m debt swap tranche
Egypt and Germany signed a €118m (approx. EGP 6.7bn) financial cooperation agreement to support education and the energy pillar of Egypt's 'NWFE' programme, alongside a new €21m (EGP 1.2bn) debt swap tranche for renewable energy supply. The agreements were signed by Egypt's Minister of International Cooperation, Rania Al-Mashat, and German Ambassador to Egypt, Jürgen Schulz. Egypt's Minister of Electricity and Renewable Energy, Mahmoud Esmat, also attended the signing for the new debt swap tranche, which raises the Egypt-Germany Debt Swap Programme's total value to approximately €297m (EGP 16.8bn). The €118m financial cooperation includes a €32m grant for the Comprehensive Technical Education Initiative, benefiting the Ministry of Education and Technical Education. This aims to establish 25 Egyptian Centres of Excellence by constructing around three sector-focused centres. The agreement also allocates €86m – €54m in development financing and €32m in grants – to connect Aqua Power Stations (1) and (2), enabling the offload of 1,100 megawatts of wind energy for the NWFE (Nexus of Water, Food, and Energy) programme's energy pillar. The separate €21m debt swap agreement involves the Central Bank of Egypt, the Ministry of Electricity and Renewable Energy, the Egyptian Electricity Holding Company, and the German Development Bank (KfW), targeting sustainable and renewable energy supply improvement. Al-Mashat said 'these agreements further solidify Egypt's partnership with Germany, contributing to economic development, climate action, and investment in human capital.' She added that 'the financial support agreement is part of an ongoing partnership, bolstered under the framework of the Egyptian-European strategic cooperation and backed by both governments' leaderships.' Al-Mashat also noted the importance of the '€21m debt swap agreement, which builds on cooperation initiated in 2011. Numerous development projects have been carried out under this framework, and the debt swap program with Germany is a practical application of calls to reform the global financial system.' Electricity Minister Esmat confirmed that 'Egypt has undergone a comprehensive infrastructure overhaul and enacted legislative reforms to attract private sector and international investment in electricity and renewable energy, particularly in the renewable energy sector, making Egypt one of the most attractive destinations for investment in this sector.' He highlighted the 'expansion of both solar and wind capacities, driven by both domestic and foreign private sector investment.' Ambassador Schulz stated, 'Egypt is an important partner for Germany in achieving global climate goals. This is why Germany supports Egypt with expertise and funding in its strategic investments for the future, especially in the expansion of renewable energy.' 'From the very beginning, Germany has supported Egypt's climate initiative NWFE as its largest bilateral partner, with assistance amounting to approximately EGP 15bn. The projects referred to in the agreement signed by us today will make it possible to supply more than 2.5 million households with green electricity,' Schulz added. During COP27, Germany committed €250m to support the energy pillar of Egypt's NWFE programme, including €104m in debt swaps. A €54m agreement was signed in 2023 for electricity transmission network investment and to connect two wind farms (Noes Wind Farm and Amunet Red Sea Wind Farm, combined capacity 500 megawatts) to the national grid. Work is ongoing to sign the second debt swap tranche under this programme, valued at €50m.
Egypt Today
5 days ago
- Business
- Egypt Today
Egypt, Germany Advance Green Energy Ties with €21 Million Debt Swap Deal
CAIRO – 26 May 2025: Egypt has signed a new €21 million debt swap agreement with Germany, further strengthening their long-standing development cooperation. The agreement brings together the Central Bank of Egypt, the Ministry of Electricity and Renewable Energy, the Egyptian Electricity Holding Company, and Germany's KfW Development Bank. This funding will help bolster Egypt's renewable and sustainable energy infrastructure, supporting efforts to enhance energy security and transition to cleaner sources. With this latest deal, the total value of debt swap tranches executed between the two countries now stands at approximately €297 million—equivalent to around EGP 16.8 billion. Minister of Planning, Economic Development, and International Cooperation, Dr. Rania Al-Mashat, stressed the significance of the agreement, noting it extends a development partnership that began in 2011 and has since delivered numerous impactful projects. The agreement aligns with Germany's €250 million pledge at COP27 to support Egypt's NWFE (Nexus of Water, Food, and Energy) program, including €104 million allocated through debt swaps. One of the program's milestones came in 2023 with a €54 million agreement to expand Egypt's electricity transmission network and connect two major Red Sea wind farms—Noes and Amunet, with a combined capacity of 500 MW—to the national grid. A second tranche under the NWFE platform, valued at €50 million, is currently in the works. The Egypt-Germany debt swap program is governed by a structured framework that ensures effective implementation and optimal use of funds. The Ministry of Planning plays a leading role in coordinating project selection, conducting negotiations with KfW, and managing the technical and financial components in collaboration with national stakeholders.
