Egypt’s currency, the pound, has dropped by nearly 20% against the US dollar since the beginning of 2023, with some experts predicting further decline. This positions the Egyptian pound as the sixth worst-performing currency since the start of the year. In 2022, the currency lost more than 50% of its value. The pound was trading at around 30.85 per dollar on Wednesday. At the end of March, the Lebanese pound was ranked the worst currency, having depreciated by up to 70%.
Venezuela’s bolivar and Zimbabwe’s dollar followed closely behind. Iran’s rial was ranked as the fifth worst. Steve Hanke, a professor of applied economics at Johns Hopkins University, who monitors troubled currencies, says these sharp declines are nothing new, as all three Middle Eastern currencies are plagued by serious endemic problems.
Egypt’s economic problems mean its pound still has room to fall, according to experts. The country’s headline inflation in February hit a more than five-year high, skyrocketing 31.9% year-on-year, driven by soaring food prices exacerbated by the war in Ukraine.
Egypt is a top importer of wheat, and Ukraine and Russia are among its top suppliers. The IMF approved a $3bn loan to salvage Egypt’s ailing economy in December 2022, but the loan is contingent on the country’s commitment to economic reform over the next four years, including embracing a flexible exchange rate. The IMF also forecast Egypt’s financial gap to be about $17bn over the next four years. A financial gap refers to how much foreign exchange a country needs to pay off its debts.
Goldman Sachs’s Farouk Soussa is hesitant about the move, stating that it is too small to catalyse significant capital inflows, and thus is unlikely to ease pressure on the pound or alleviate the foreign exchange scarcity issues the economy is facing.
The Monetary Policy Committee has also raised its key interest rates by 200 basis points recently in efforts to tame inflation, though Soussa believes the move will not result in any substantial easing. The risk of further pound weakness in the immediate term is high, particularly within the context of the first review under the IMF program, says Hanke.