A number of investment banks expect the Egyptian pound will not depreciate against foreign currencies on the back of the slowed growth of Egypt's foreign currency earners like tourism, the Suez Canal, and exports owing to the Covid-19. “The dollar will continue to hover around its current rate of LE15.7,” said Alia Mamdouh, a senior economist with Beltone, an investment bank. Although dollar revenues from tourism and exports will remain weak throughout the year, there will be no added pressure on the pound due to a slowdown in imports, she added. Mamdouh also expects remittances from expatriates working abroad to see an increase. Even if more Egyptian workers are laid off from their jobs in the Gulf, their end-of-service earnings will result in a rise in remittances, she stated. Preliminary data shows remittances increased in September at an annual rate of 16 per cent to record $2.7 billion, up from $2.3 billion in September 2019. Remittances increased annually by 11.6 per cent to register $22.1 billion between January and September 2020, up from $19.8 billion during the same period in 2019. A Beltone report released early in December expected the pound to record an average exchange rate of LE15.78 to the dollar in 2021, with forecasts of an increase in the pound's value over the coming five years. The exchange rate of the pound will see narrow and healthy reverberations, Beltone added, as a result of the limited demand for imports. The bank expects the next 18 months to see greater stability, with the pound recording an average of LE15.75 against the dollar in 2020-21, and LE15.78 in 2021. December 2019 estimates put the pound at LE15.92 against the dollar in 2020-21. Egypt will receive a tranche of over $1 billion from the International Monetary Fund (IMF) as part of its 12-month $5.2 billion stand-by arrangement signed in June during the first quarter of the year, Mamdouh said. Moreover, the Ministry of Finance is expected to offer euro bonds worth $5-6 billion, as is its habit at the beginning of each year, which will help the country meet the demand for foreign currency, especially with the decline in traditional sources. Mamdouh also expects Egypt's repaying of debts to the Gulf states — $10 billion in loans and deposits — to be postponed. Egypt's foreign reserves lost $9.5 billion of their value between March and May last year, with the outbreak of the coronavirus and the emergence of its economic repercussions, before increasing to settle at $40 billion in December. The increase was fuelled by various inflows. Egypt has recently acquired $4.8 billion from the IMF through two cooperation programmes, collected $5 billion from selling bonds in foreign markets, and sold green bonds to a value of $750 million. The country's banks also obtained foreign funds from international banks and institutions to finance some sectors of the economy. Total foreign investment in domestic debt instruments recorded $23 billion by the end of November, up from $21.1 billion in mid-October and $10.4 billion in May, according to statements by Minister of Finance Mohamed Maait last week. The coronavirus outbreak had driven foreign investments out of Egypt, as was the case for all emerging markets, but the stability of the Egyptian economy as well as high yields have attracted them back. Mona Bedeir, a macroeconomic analyst with Prime Holding, a brokerage, said foreign investments in local debt instruments would remain robust. Egypt is one of the strongest economies in the emerging markets, even as the Central Bank of Egypt (CBE) continues its monetary easing operations translating into lower interest rates. However, the yields offered on treasuries would continue to attract foreign investments, Bedeir added. Beltone believes that Egypt's foreign reserves have regained their strength and can cover the need for foreign currency in the local market. The investment bank expects inflows of $18.5 billion in 2021-22, which will cover 80 per cent of the foreign financing gap expected during the year. Pharos, another investment bank, expects the dollar to settle at LE16 from 2021 through 2024. In a recent report, Pharos said it expected a slight fluctuation in the exchange rate while maintaining an annual average of LE15.91 to the dollar in the current fiscal year and up from LE16.32 forecast last year to record an average of LE16 until 2023-24. Radwa Al-Swaify, head of research at Pharos, said that Egypt would not see fewer dollar inflows in 2021 than in 2020, pointing out that tourism could witness an improvement in the last quarter of the year and that remittances could range between $20 and $25 billion. She added that Egypt was expected to obtain between $8 and $10 billion from selling euro bonds. Pharos concluded that the exchange rate would remain broadly stable over the next three years due to favourable global monetary conditions. “The current monetary policy in advanced economies (mainly the US) has resulted in two consecutive interest rate cuts. This, along with increasing reserves, a stable interest rate gap, and lower inflation, will reduce pressures on the exchange rate in favour of its appreciation,” it noted.
*A version of this article appears in print in the 14 January, 2021 edition of Al-Ahram Weekly.
