EFG Hermes, one of the largest investment banks in the Middle East and Africa, has ruled out any significant change in the Egyptian pound’s exchange rate against the US dollar in 2019, despite the expected strong performance of the US currency in the new year.
Hermes said that stability in the Egyptian pound’s exchange rate reflects the strong basis of the Egyptian economy as a result of the state’s adoption of the reform program more than two years ago.
Head of the research sector at EFG-Hermes Ahmed Shams said that although the US dollar remains below LE 18 pounds, this stability is technically a rise for the pound against the dollar in 2018, given the rise in the US currency against major and emerging currencies last year.
The exchange rate of the Egyptian pound was stable most of the time in 2018 against the major international currencies, at the end of the year reaching LE 17.86 for every dollar to buy, and LE 17.95 per dollar for sale.
“The central bank will have to continue its policy of monitoring and conserving inflation and interest rates, which is a difficult equation in light of the rapid and volatile changes in international markets, and the expected rise in the new US dollar and the potential volatility in emerging markets,” Shams added.
He said that Egypt would not need to enter the upcoming race between emerging markets to attract hot money in 2019, especially that foreign debt structure for Egypt is not worrisome, as 40 percent of it is of low interest from international institutions, while Gulf deposits could continue to be repositioned in such a way as not to put pressure on the central bank.
From November 2016 to March 2018, Egypt attracted more than $21 billion in foreign investments in treasury bills before about $11 billion of it left in the following months of 2018 due to emerging market crises.
The challenge remains in the international bonds offered by Egypt in the world markets, amounting to about $16 billion, Shams said, pointing out that the external debt service in 2019 may reach $2.5 billion and will decline to about $2 billion in 2020, which is not alarming, as the funding gap remains under control.
“If the government sees a need to go to the international markets to offer dollar bonds, it has to go better today than tomorrow,” he said. “Because the longer it is late, the global debt service prices will be going up significantly in 2019.”
The Egyptian government plans to issue international bonds in international markets during 2019, ranging from $4-7 billion.
The Egyptian economy benefited greatly from the liberalization of the exchange rate, which is the most important item of the reform program implemented by Egypt, Shams said.
Edited translation from Al-Masry Al-Youm