Eight months has passed since the government adopted its strategy to rationalise imports in collaboration with the Central Bank of Egypt (CBE). This strategy aims to control the foreign currency shortage in the market and face the rising price of the US dollar in the informal market. However, this has all been in vain. The exchange rate of the dollar rose to a record high, registering EGP12.70 in the informal market. Importers told Al-Borsa that, following the government's decisions and the implementation of the CBE's new import policies, they ceased importing some goods from the beginning of this year even though these goods had been consistently imported in recent years. They said the crisis is still ongoing "as we are not part of it". Since the beginning of January, the Ministry of Finance has increased customs tariffs on 600 imported goods at rates ranging from 10-20% on top of the old fees. In addition, Minister of Trade and Industry Tarek Kabil has banned the import of more than 50 goods, including certain food products, clothes, and some electrical appliances. In conjunction with the measures taken by the government, the CBE issued special controls for the import process. It obliged banks to obtain a full 100% cash deposit instead of 50% for granting letters of credit. Letters of credit finance the import of goods for trading companies or on the government's behalf, with the exception of some key basic commodities. Hany Genena, the head of the research sector at Beltone Financial, said that the continuation of the rationalisation strategy is not the proper solution for the problem, as it only offers a temporary solution to a chronic problem. He added that this strategy will lead the market into a recession as "the majority of the industries in Egypt depend on imported commodities". The CBE declared that there was a decrease in the foreign exchange reserves last month, estimated by $15.5bn as of the end of July, after repaying Egypt's foreign debts. "The rationalisation plan should not last for longer than nine months, so as to avoid a recession," Genena said. Genena said that the real crisis is the shortage of dollar liquidity in the market. Therefore, the floatation of the local currency will partially contribute to solving the crisis or ease the burden it is causing. In the last week of July, after three months of unannounced negotiations, the government officially declared the beginning of the final round of negotiations with the International Monetary Fund (IMF) to borrow $12bn over a three-year period within an economic reform programme. This programme aims to collects $21bn, which includes the IMF loan. The IMF declared in a statement, after its consultation with the Egyptian government in August, that the monetary and exchange policies pursued by the CBE in the framework of the reform programme will increase the efficiency of the foreign exchange market's performance, lift foreign exchange reserves, and allow for a transition to a more flexible exchange rate system. Cairo-based senior economist at Arqaam Capital, Reham El Desoki, said that reducing the value of the local currency will help the CBE face the dollar shortage crisis and counter speculation on the informal market—in conjunction with the rationalisation of imported goods. The CBE imposed more strict controls on the parallel market in August. The result was closing down 53 foreign exchange companies, according to deputy governor of the CBE Gamal Negm. She added that rationalising imports alone is not enough to face the current problem in the market, as economic activity in Egypt is linked to a number of imported commodities. El-Desoki noted that depreciating the pound in the coming period is very important in order to raise competitiveness of Egyptian exports and tourism, in parallel with procedures taken by the government and the CBE to increase hard cash on the market. The government and the CBE need to create a balance between demand and supply on the US dollar in the coming period, at least, she said. Moreover, she pointed out that demand would remain high as long as products are being sought amid the absence of domestic alternatives, which could even give rise to a smuggling problem. She added that the strategy to rationalise imports may succeed to some extent, but it cannot be relied upon heavily in solving the shortage of dollar liquidity. The CBE directs the dollars given to banks in its weekly tender to cover import requests, especially for medicine and industry-related goods. Head of the importers section in the Cairo Chamber of Commerce, Ahmed Sheha, said that importers are not the reason behind the problem, adding that they only import demanded goods. He noted that most importers stopped the import of goods that were banned by the government. Egypt has been suffering a severe shortage in dollar liquidity over the past two years. The crisis intensified on the back of a decline in dollar-denominated revenues from the Suez Canal and the sharp decline in tourism following the Russian aeroplane crash last October.
