Egypt and the United Arab Emirates have signed a local-currency swap agreement worth approximately $1.4 billion in an effort to alleviate Egypt’s economic crisis.
The agreement, announced in a joint news release, allows the two central banks to exchange up to five billion Emirati dirhams and 42 billion Egyptian pounds, which is equivalent to around $1.36 billion.
Egypt has been grappling with a severe economic downturn, with its currency, the Egyptian pound, experiencing a depreciation of over 50% against the US dollar in the past 18 months. This has led to a shortage of foreign currency, making it difficult for the country to import essential goods, particularly grain.
Egypt, the most populous country in the Middle East, relies heavily on grain imports, with its traditional suppliers being from Eastern Europe. However, the country has been hit hard by the impact of the Ukraine war, which has disrupted these supply chains.
The economic turmoil in Egypt is further compounded by soaring inflation rates. In the past month, the country’s annual inflation rate reached 39.7%, more than double compared to the same period last year when it stood at 15.3%. This has put a significant strain on the Egyptian population, as their purchasing power diminishes and essential goods become more expensive.
Currency swap agreements are typically utilized when countries aim to bolster their central and domestic banks by providing them with additional liquidity in the form of foreign currency. By entering into this agreement, the UAE is effectively extending financial support to Egypt, enabling its central bank to strengthen and stabilize the Egyptian pound.
James Swanston, an economist specializing in the Middle East and North Africa, suggests that the UAE is playing a crucial role in supporting Egypt’s struggling economy. He states, “It seems again that the UAE is providing Egypt with financial support. Egypt’s central bank needs more ammunition to prop up its currency.”
The UAE and other Gulf states have been major supporters of President Abdel Fattah el-Sisi’s administration since its establishment in 2013.
According to estimates, more than $100 billion in funding from the Gulf has been provided to Cairo through deposits in the Central Bank, fuel assistance, and additional forms of support during this time.
Both the heads of the Emirati and Egyptian central banks expressed that Thursday’s agreement would strengthen cooperation between these two allied nations, although they did not provide many specifics about the deal.
IMF deal and pound devaluation
The IMF deal and pound devaluation have been a hot topic of discussion in the economic world, particularly in relation to Egypt. Egypt has been in negotiations with the International Monetary Fund for a $3 billion rescue program, but there have been several challenges impeding progress.
According to a report by Bloomberg, Egypt has recently addressed a key concern that has hindered the review of the IMF rescue program. The IMF has long been urging Egypt to carry out a sale of state assets, and it seems that Egypt is now more willing to do so, following some significant deals. This willingness to carry out asset sales is seen as a positive development by the IMF.
However, there is another stumbling block in the form of the upcoming presidential elections in Egypt, scheduled for December. This has made it difficult for the Egyptian government to meet the IMF’s demand for pound devaluation. Devaluing the pound would put additional pressure on consumers who are already struggling due to limited financial resources.
The slow progress of reforms in Egypt is a cause for concern, as it could mean that the already delayed review of the IMF program might not be possible this year. This lack of progress is likely to further erode investor confidence in Egypt’s economy, which currently stands at $470 billion.
The pound devaluation has been a contentious issue, with supporters arguing that it would help boost exports and attract foreign investment, while critics worry about the impact on the already strained consumer sector. The IMF has been pushing for pound devaluation as part of its efforts to address Egypt’s economic challenges and reduce its budget deficit.
The IMF deal and pound devaluation are crucial factors in Egypt’s economic recovery and stability. The country has been grappling with economic hardships, including high unemployment rates, soaring inflation, and a widening budget deficit. These challenges have been exacerbated by the COVID-19 pandemic, which has hit Egypt’s key sectors such as tourism and remittances.
While the Egyptian government has taken some steps to address these challenges, such as implementing structural reforms and securing financial assistance from international entities, more needs to be done to ensure a sustainable economic recovery. The IMF deal and pound devaluation are seen as crucial elements in this process.