President Abdel Fattah El Sisi has ruled out another devaluation of Egypt’s embattled currency in the near future, saying it would place an unbearable burden on the nation’s 105 million people.
The comments were the first by the Egyptian leader on speculation regarding the Egyptian pound, which has been devalued three times since early 2022, but has been stable at about 31 to the US dollar for several months now.
The dollar is sold at close to 40 pounds on the Egyptian black market.
The declining value of the pound against the dollar has caused price rises across the board, pushing inflation to near-record highs of about 32 per cent in May.
Additionally, Egypt is suffering from a dollar crunch that is suppressing imports and hurting local industries dependent on foreign materials.
The International Monetary Fund has urged the country to adopt a flexible foreign exchange regime in return for financial assistance from the Washington-based lender.
Mr El Sisi has blamed the nation’s economic crisis on the coronavirus pandemic and the fallout from the Russia-Ukraine war.
Critics, however, also blame what they view as excessive borrowing and overspending on mega projects that have no immediate return.
When the effect of the foreign-exchange rate is taking a toll on Egyptians’ lives, the government cannot ignore it, Mr El Sisi said on Wednesday during a meeting with representatives of a Nile Delta village.
“This can plunge you into a crisis beyond your imagination. Let us be clear, we are flexible [on foreign exchange rates] but when this can potentially hurt Egypt's national security and crushes Egyptians, then no, no, no,” he said.
“When the foreign exchange [rate] impacts on the lives of Egyptians and can crush them, then, no! … Even if this contradicts with …” he said, stopping short of specifying who the move may be at odds with.”
He was apparently referring to the IMF.
A report by Goldman Sachs this week, based on meetings with Egyptian decision makers, analysts and local market participants, concluded that the prospect of another devaluation was low.
It said Egyptian authorities would not adopt a flexible foreign exchange regime before the sale of state assets, which in turn would generate foreign currency liquidity.
The IMF agreed late last year to give Egypt a $3 billion loan to overhaul its finances.
Apart from a flexible foreign exchange regime, the fund also wants Egypt to reduce the state’s footprint in the economy, offering the private sector a bigger role.
“We believe a recent flurry of activity is likely to lead to some asset sales in the coming weeks, but we think the pace of the asset sale programme will remain modest given structural impediments,” Goldman Sachs said.
Egyptian authorities said in January that the government was selling stakes in 32 state enterprises, including banks and companies owned by the military.
However, investors’ interest has been weak given the uncertainty surrounding the value of the Egyptian pound.
Mr El Sisi faces an election in April 2024. He has yet to say whether he intends to run, but, barring unforeseen circumstances, he is expected to run and secure a second, and final, six-year term in office.
A fourth devaluation of the pound and the subsequent price increases would probably stoke popular discontent.
Significantly, however, the sharp price rises of the past 15 months have not led to public displays of dissent, something that is widely attributed to Egyptians not wishing to relive the years of turmoil that followed a popular uprising in 2011.
Street protests, moreover, have been banned since 2013 and imprisonment for up to five years awaits anyone convicted of breaking the ban.
Mr El Sisi, in office since 2014, also sought to assure Egyptians over the economic crisis in his comments on Wednesday.
“Everything in life has a beginning and an end,” he said. “Crises pass. And like all crises, this one will pass and we will be better off than we were.”
He also defended his economic policies, particularly his focus on mega infrastructure projects such as expanding the nation’s roads network, building new cities – including a $60 billion new capital in the desert east of Cairo – and a monorail and clean-energy commuter trains.
Critics contend that many of those projects are either unnecessary or should have been postponed while funds were spent on vital sectors such as education and health care.
“Should I leave people stuck on the roads or living in tin homes [shanty towns] or allow food to be a little more expensive,” he said, alluding to new roads and the resettlement of shanty-town dwellers in state-built housing projects.