Uptick in Egypt’s economy tempered by caution

Egypt appears on track to break with past practice and let its currency float in line with IMF-backed reforms, but structural changes that could pull the country out of a cycle of bailouts look less likely.

After two years of chronic foreign currency shortages, Egypt has secured a windfall of funding since late February including US$24 billion in new funds for a UAE project to develop a city on the Mediterranean coast and more than US$15 billion from the International Monetary Fund, European Union, and World Bank.

As part of a deal with the IMF in March, the central bank allowed the pound to depreciate sharply, a step it took repeatedly in previous years only to revert to tight control of the exchange rate when the pound came under pressure.

This time could be different: while some restrictions remain in place, the currency is mostly trading freely, bankers and analysts said.

After the float, foreign investors twice tested the central bank’s commitment to a flexible exchange rate, on March 25 and April 15, by selling hundreds of millions of dollars worth of Egyptian pound treasury bills and repatriating the profits, three senior commercial bankers and one investment banker told Reuters.

The central bank did not intervene either time, but rather let the pound weaken against the dollar, leading investors to believe the currency really was floating, the bankers said.

Observers see other signs of change. The government has been slowing spending on large infrastructure projects that have caused Egypt’s foreign debt to surge, two bankers and several businessmen said. 

A Western diplomat said he believed the government would stick to payment plans on arrears accumulated with foreign companies. – Reuters

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