Egypt’s Central Bank Governor, Hassan Abdullah, confirmed the country’s commitment to a flexible exchange rate policy, stating that the country cannot fix its currency at this stage. His comments, made during a dinner hosted by the Federation of Saudi Chambers of Commerce in Cairo on Saturday, highlight Egypt’s ongoing economic reforms and its attempt to stabilize its currency.
Adapting to Market Forces: Egypt’s Flexible Exchange Rate
“Egypt cannot fix its exchange rate. It currently follows a flexible exchange rate policy governed by supply and demand, like global currencies,” Abdullah emphasized. The country’s adoption of a flexible exchange rate policy stems from a crucial decision made in early March 2024, where Egypt allowed its currency to depreciate by approximately 40%, pushing the Egyptian pound to around 50 pounds against the dollar. This move was a necessary response to a two-year economic crisis, which had significantly impacted the country’s foreign exchange reserves.
The decision to move to a market-based exchange rate was also a key stipulation from the International Monetary Fund (IMF). In return for the flexibility, the IMF increased its financing program for Egypt from $3 billion to $8 billion, supporting the nation’s efforts to overcome its currency crisis. This reform was aimed at alleviating Egypt’s ongoing foreign exchange challenges and fostering a more resilient economy.
Signs of Economic Stability Amid Challenges
Despite the fluctuations in the currency, Hassan Abdullah reassured the public that Egypt’s macroeconomic situation had greatly improved. “Egypt is witnessing stability, and its economy is much more balanced compared to the past,” he noted. Abdullah further stated that the banking sector is in a solid position, with sufficient liquidity to ensure the availability of banking products and to encourage investments.
The implementation of the flexible exchange rate has had positive results, especially with the recent economic reforms that have been recognized by international credit agencies. These efforts have also drawn positive attention from major global rating agencies, such as S&P Global Ratings, which assigned a “positive” to “stable” outlook on Egypt’s future credit rating.
IMF’s Role and Egypt’s Credit Rating Improvements
Egypt’s adherence to the IMF’s guidelines, including the flexible exchange rate and subsequent economic reforms, has resulted in tangible progress. Over the past year, the foreign exchange market in Egypt has become more driven by market forces, helping boost competitiveness. This, in turn, has contributed to an overall improvement in economic growth.
S&P Global Ratings highlighted Egypt’s implementation of several reforms since the liberalization of its exchange rate regime in 2024. The report also noted that Egypt’s foreign exchange market is now functioning more efficiently, enhancing the country’s economic outlook and encouraging foreign investments.
A Long Road Ahead: Balancing Stability and Growth
While the flexible exchange rate policy has allowed Egypt to address some of its foreign currency challenges, the country’s path to economic stability remains a work in progress. The fluctuating value of the pound and continued dependence on external financing sources indicate that Egypt must remain vigilant in its economic policy execution. However, the recent positive adjustments to Egypt’s credit rating and the success of IMF-backed reforms suggest that the country is on the right track to long-term stability.
Abdullah’s statements also point to the importance of external financial support and internal fiscal discipline in ensuring the success of Egypt’s ongoing reforms. The country will need to continue to monitor the impacts of a fluctuating exchange rate on domestic inflation, imports, and overall purchasing power to maintain the confidence of both investors and the Egyptian populace.
