Egyptian Pound To Appreciate 4.5% in 2020

Société Générale expects the Egyptian pound to continue its strong performance during 2020, as it expects a 4.5% increase against the dollar to EGP 15.35 pounds.

Economists expected that the Egyptian pound will continue its strong performance against the dollar and the rest of the major currencies during 2020 following the success of the central bank in managing the monetary policy file, controlling inflation rates and following the free market policy in the exchange market, as well as the continued improvement of macro economic indicators.

Experts stressed that the pound will be positively affected by the expected strong performance of the tourism and investment sectors in addition to the Suez Canal, as well as the steady increase in Egypt's exports and the declining state dependence on imports, especially in the gas sector, which will save more than $ 3 billion.

Four years earlier, the International Monetary Fund (IMF) set 16 pounds as the real value of the Egyptian pound against the dollar ahead of economic reform program. However, some speculators used the Egyptian currency as a commodity, which brought huge profits from the black market, reaching more than EGP 18.

According to the IMF, Egypt will face a shortage of foreign reserves due to the end of the last tranche received from the reform program. The shortage in the dollar will eventually lead to an increase in the price of the currency in the Egyptian market, however, if Egypt succeeds in attracting more foreign direct investments (FDI) and tourism revenues accompanied by a cut in imports, the country can overcome this deficiency, leading to a decline in the value of the greenback in the country.

In a recent report, Bloomberg placed Egypt among the ten African markets worth following during the year 2020. The report pointed out that the return on interest or speculative interest in the Egyptian pound reached 14%.

The report added that the return on debt instruments issued in the local currency, in both Egypt and Nigeria, achieved a return exceeding 30%.

At the level of the African continent as a whole, the report showed that government debt instruments in dollars issued by the continent have reached 20% since the beginning of 2019, which is higher than all emerging markets.

The figures indicate that the strong gains of the Egyptian pound are directly related to the increase in confidence in the Egyptian economy as a result of the progress the the Egyptian government achieved after implementing the economic reform program, which contributed to increasing foreign exchange flows to the Egyptian market.

This is in addition to the increase in foreign flows, especially in terms of funds of the financial portfolios, which are estimated between $200-300 million daily, rising to $500 million in some cases, according to figures announced by the Central Bank of Egypt (CBE).

Also, the high flows of foreign investment funds in Egyptian debt instruments, especially in treasury bills (T-bills) and bonds supports liquidity in foreign currency.

The measures undertaken by the Ministry of Finance in coordination with the Ministry of Trade and Industry and the Central Bank also imposed regulation of import operations and excluded the import of "provocative" goods, which has caused a drop in demand for the dollar, and thus a decline its price.

The pound rose against the US dollar in 2019 by 12% to EGP 15.98 compared to EGP 18  in early 2019.

Egyptian Economist Mohamed Rushdi expects that the US dollar will fall to levels between EGP 14.90-15.30 during the second half of 2020, this will also support the continued rise in foreign exchange reserves mainly because the increasing tourism revenues, which may exceed EGP 15 billion as well as the growth of Suez Canal revenues, in addition to the remittances from Egyptians working abroad, estimated between $26-$28 billion in the last two years.

"The Egyptian pound will move more freely in 2020 with the forces of supply and demand as the main driver of the exchange market in Egypt," Rushdi added, expecting the dollar to record EGP 16.25 as the maximum possible rise of the US currency against the pound.

On his part, economist, Samir Raouf suggested that the dollar would continue its decline against the Egyptian pound during the year 2020 to reach EGP 14,75, amid expectations of an increase in tourism revenues and attractiveness of the Egyptian market compared to its counterparts in emerging markets, despite the general tendency toward cutting interest rates on Egyptian debt instruments.

It is noteworthy that the Egyptian pound achieved its best performance in 2019 after appreciating by 12% in 2019.