Egypt’s largest banks have suspended debit card withdrawals and purchases made in foreign currency in a bid to mitigate a foreign exchange crunch that has affected the cash-strapped North African nation as it contends with struggling economic growth.
Clients of both state-owned and private banks, including the National Bank of Egypt, the Commercial International Bank and HSBC, received text messages notifying them that, for an undetermined period, they would not be able to withdraw foreign currency in hard cash or make purchases from outside the country.
“We received direct instructions from the Central Bank of Egypt to do this. We weren’t told until when we would be required to keep these controls in place,” the manager of a bank in the Cairo district of Heliopolis told The National, on condition of anonymity.
“But based on private conversations I have had with government officials, it will probably ease up again once the government has secured more funding from foreign institutions by the end of the year.”
While some banks have also placed limits on withdrawals and purchases in foreign currency made with credit cards, the suspension is currently only for debit cards.
It also applies to withdrawals from bank accounts in Egyptian pounds.
“So far, we have not received any instructions from the Central Bank of Egypt to implement the suspension on credit cards or bank accounts in foreign currency,” the manager said on Tuesday.
“Our clients who have US dollar accounts and credit cards have continued to withdraw foreign currency until today.”
Despite the central bank not publicly addressing the new controls, the bank manager said that the government has been aware that many FX-holders in Egypt are using debit cards to funnel funds outside of official channels, preferring to exchange them on the black market where US dollars are trading for over 10 Egyptian pounds higher than the official exchange rate of 30.9.
The move has been met with concern from Egyptians on social media, many of whom expressed worries that they would not be able to pay for online purchases.
The suspension will be particularly detrimental for freelancers and small businesses, as many of them rely on online software subscriptions for their operations, a professional video editor told The National.
A dollar crunch has sparked an economic slowdown for the Arab world’s most populous nation, which relies heavily on FX to keep its import-heavy economy afloat.
Since March 2022, inflation has been on a steady increase, reaching a record high of 38 per cent in September.
The local currency has also lost half of its value against the dollar in the same time frame following three consecutive devaluations.
Following a meeting last week between Prime Minister Mostafa Madbouly, Supply Minister Ali El Moselhy and Central Bank of Egypt Governor Hassan Abdallah, the government said it was taking steps to lower prices of essential food items by between 15 per cent and 25 per cent for six months.
The government has prioritised the use of its limited foreign currency for port clearances of basic food items.
The move seeks to increase supplies in the local market and, subsequently, decrease prices.
Mr El Moselhy confirmed that the necessary foreign currency has been “set aside” by the central bank for the initiative.
The amount will help the government sustain the initiative for up to six months, after which prices would most likely rise again, he said.
The strategy by the government comes ahead of the presidential elections that will take place in December.
The price reduction policy is one of the best ways of promoting the election campaign of incumbent president Abdel Fattah El Sisi's election campaign, Negad El Borai, a prominent lawyer, told The National.
After devaluing its currency three times to meet demands from the International Monetary Fund in exchange for a $3 billion loan, Egypt has failed to completely float its currency, a crucial demand from its creditors.
Last week, credit rating firm Moody’s downgraded Egypt's rating by a notch to 'Caa1' from 'B3', citing the country's worsening debt affordability.
Following the downgrade, Egyptian Finance Minister Mohamed Maait said that the government would respond by implementing structural reforms to address its economic challenges and taking measures to stimulate investment.
He added that Egypt had contained spending in the financial year that ended in June, despite the knock-on effects from the war in Ukraine that have driven up prices of imports like fuel and food.