Egyptian pound stable after devaluation, IMF deal

Egypt’s currency was stable at around 49.5 pounds to the dollar as the market opened on Thursday, a day after the central bank let the currency plunge and pledged to shift to a more flexible exchange rate system as the country secured an expanded $8 billion program with the IMF.

The pound stayed in the same range it had settled at near closing on Wednesday, LSEG data showed. Before Wednesday’s devaluation and a steep interest rate hike, the central bank has held the currency for about a year at just under 31 pounds to the dollar.

A more flexible exchange rate, long a key demand from the IMF, is seen as crucial for restoring investor confidence in an economy that has been hobbled for the last two years by a foreign currency shortage.

The central bank said it was committed to “allowing the exchange rate to be determined by market forces” and unifying the official and black-market exchange rates.

The Washington-based lender has said it is looking for a sustainable, unified, and market determined exchange rate.

Under the IMF program, Egypt has committed to undertake structural reforms to stabilize prices, manage the debt burden and encourage private sector growth.

Egypt has already devalued its currency three times recently, but had previously held back from fully floating the pound amid concerns for the impact on Egyptians, two-thirds of whom live on or below the poverty line.

The economy, dominated by military-linked enterprises and focused on expensive infrastructure megaprojects, has been hit hard by recent shocks.

Investors pulled billions out of the country when Russia invaded Ukraine and the cost of wheat and other imports surged. Remittances from overseas Egyptian workers, a key source of foreign currency, slumped by as much as 30 percent in July-September 2023 alone.

And the other main source of foreign currency, Suez Canal revenue, has been cut in half by Houthi attacks in the Rea Sea.