CAIRO: The Egyptian pound slipped to its weakest rate on the black market on Wednesday, raising pressure on the central bank to devalue as firms complain of problems clearing imports and repatriating earnings.
Egypt has been starved of foreign exchange since an uprising in 2011 ended Hosni Mubarak’s 30-year rule but drove away tourists and foreign investors – major sources of hard currency that it needs for imports of everything from wheat to petrol.
Foreign reserves have more than halved since the uprising to $16.4 billion in January, helping to prompt black market speculation against the pound.
A year ago, the central bank imposed strict controls on hard currency movements. These were eased this year but the currency shortage has made it harder for companies to operate and forced many to resort to the black market for their dollar needs.
The central bank sold $38.8 million at a cut-off price of 7.7301 pounds to the dollar at its official auction on Thursday, unchanged from the previous auction.
But the black market rate weakened significantly, with traders quoting 9.50 pounds to the dollar, against 9.30 to 9.34 on Tuesday.
“There is a lot of demand to buy dollars but very little on offer. Those who have dollars are holding onto them and that is contributing significantly to the rapid leaps in price,” said one black market trader.
Speculation against the pound has increased in recent weeks despite Egypt receiving some $1.5 billion this year in aid from China and the African Development Bank, boosting reserves.
Egypt also launched this week new certificates at attractive yields to lure forex from a diaspora of almost 5 million.
“We think the latest moves … suggest that a long-awaited devaluation of the pound may be just around the corner,” London-based Capital Economics said in a note on Wednesday.
“This will inevitably involve some short-term pain, but over a longer horizon, it should help to lay the foundations for a period of stronger growth.”
Many companies are already paying the black market rate as they cannot cover their needs from the banking system. Foreign companies and multinationals are also working into their budgets the risk of a devaluation many now see as inevitable.
“Doing business in Egypt even for big multinationals like us is becoming more and more difficult. It looks like they will have no option but to devalue,” said a source at a multinational that operates in Egypt.
In recent weeks, airlines operating out of Egypt have complained that they have been unable to repatriate earnings, a problem faced by foreign investors across the board.
The Civil Aviation Ministry said on Thursday the central bank had agreed on payment schedules with those carriers, but the uncertainty has weighed on the economy.
Companies that had hoped to grow have, in many cases, put plans on hold, unwilling to part with dollars today and suffer devaluation tomorrow, robbing Egypt of much-needed investment.
“The higher cost of the dollar is already being passed on to 60 to 70 percent of the universe of importers and people,” said one Cairo-based economist. “There is just one step to go and the central bank wants to control it in a decent way and take time to pass on the cost.”