Egypt Independent

Coronavirus likely to increase US dollar exchange rate in Egypt: Experts

Experts anticipate that the worldwide spread of the novel coronavirus will increase the US dollar’s exchange rate against the Egyptian pound.

Banking expert Sahar al-Damati said that the halting of Chinese imports, combined with declining rates of exports due to import bans in some countries has contributed to the increase of the US dollar exchange rate.

She added that the suspension of flights by some countries is also expected to decrease tourist flow to Egypt, which in turn will lead to foreign currency scarcity.

The General Administration of Civil Aviation in Kuwait suspended all incoming and outgoing flights to Egypt, Lebanon, Syria, Bangladesh, Philippines, India, and Sri-Lanka for one week starting March 7.

Saudi Arabia had also banned flights to Egypt but temporarily resumed them on March 10 to allow for the return of pilgrims from the kingdom and Saudi nationals in Egypt.

The price of the US dollar against the Egyptian Pound went up in local banks during morning trading on March 10, at an average three piasters higher compared to Monday’s prices.

The exchange rate is impacted by severe turmoil in global financial markets, against the backdrop of fears of the spread of the coronavirus and the drop in global oil prices.

Wars over oil and the OPEC cutting oil output have cheapened oil prices globally, Damati said, thereby saving foreign currency for countries that import large amounts of fuel and consequently decreasing the budget deficit.

She explained that low oil prices will offset the slight rise in the US dollar exchange rate during the coming period, in addition to foreign investors continuing to invest in treasury-bills or “hot money”.

Tourism should return to normal once a coronavirus treatment emerges during the next two months, Damati said, bringing back the status-quo and seeing the US dollar exchange rate decrease once more.

Economist and stock market expert Wael al-Nahhas said that the virus’s impact on Egypt is the same as the rest of the world.

“As for the situation in Egypt, the problem of exports concerns the agricultural commodities and the suspension of flights between countries, which will lead to a shortage in foreign currency,” he added.

Pressured by the deteriorating economic conditions globally during the last period, several institutions and funds could withdraw money being invested in indirect bonds in Egypt, he added.

Egypt’s total exports, according to ceicdata, recorded $2.6 billion in Dec 2019. Egyptian crops entered 12 new foreign markets in the year 2018/2019, and the government succeeded in lifting bans and additional inspections on a number of the country’s agricultural exports, the Ministry of Agriculture and Land Reclamation announced earlier this year.

It is anticipated that the remittances of Egyptians abroad may decrease due to anti-coronavirus precautionary measures, especially in Arab countries, which alongside the loss of tourism there contributes significantly to Egypt’s hard currency flow.

According to a CBE statement, remittances from Egyptians were at nine billion US dollars in the first four months of fiscal year 2019/2020.

Nahhas expects Arab tourism to return to Egypt within the next summer period.

He said that despite the low price of energy, local prices will not significantly drop due to foreign partners and production costs, which are calculated before profits are shared.

Total tourism receipts in Egypt, or expenditures made by inbound visitors to the country, stood at $16.4 billion in 2019, according to Danielle Curtis, Exhibition Director ME at the Arabian Travel Market earlier this year.

Oil prices globally have been negatively impacted by the virus, with Reuters reporting that Brent and US crude below $30 on Monday, as China’s factory output rates fell at the fastest pace in 30 years.

Egypt imports 30 percent of its oil production at a fixed hedging price, which is something that must be studied well before announcing new prices, he said.

With the low price of oil domestically, Nahhas believes the impact will not be as large as some expect.

He does anticipate the US dollar exchange rate to continue to rise in the coming period, especially with the continued spread of coronavirus.

Investment banks also described fears of the negative impact of indirect investments exiting from emerging markets, including Egypt, up until control of the coronavirus expected to occur this summer.