THE EGYPTIAN pound -- which only shed 2.9 per cent of its strength versus the dollar since the 25 January Revolution -- would continue to depreciate to reach LE6.2 per dollar on average in 2011/2012, according to a research note prepared by the leading local investment bank Beltone Financial. The expectations are based on the condition that the pound will remain supported by the international reserves and external aid. If not secured, the rate would hover around LE6.5. The pound has been backed throughout the past nine months by supply from Egypt's Net International Reserves (NIR) which lost $14 billion in the January-October 2011 period to reach $22 billion. The failure to secure at least $4.5 billion in external aid (of which a total of $1 billion has already been received from Saudi Arabia and Qatar) will pose a downside risk to the forecast, stated Beltone note. The note moves on to year 2012- 2013 where it expects the pound to continue its depreciation trend to average 6.4, on expectation of improved balance of payments performance, the disbursement of more aid pledges and the continuation of reserve utilisation. However, the extent of currency depreciation is highly linked to the external aid to be received in the current and coming years. "If external aid does not materialise, the depreciation [of the pound] will be more severe and could average 6.8 against the dollar in fiscal year 2012-2013." Beltone points out that given that the international reserves would reach $18-20 billion at the least by end of the current fiscal year, there will be no sufficient room for Central Bank intervention to support the pound," and thus it is crucial that the Egyptian government secure external aid in any of its forms by fiscal year 2012-2013.
