Egypt's CBE Cancels Letter of Credit for Imports

Egypt’s central bank revoked a requirement for importers to secure letters of credit, a rule that had been blamed for a massive backlog at ports.

The decision, which annuls a February decree, follows earlier promises by the regulator to ease import requirements that had been in place as the country struggled with an outflow of capital linked to Russia’s invasion of Ukraine.

The dearth of hard currency prompted two devaluations in the Egyptian pound in 2022 and, most recently a 300 basis point hike in the benchmark interest rate.

The requirement of the letters of credit meant that importers either couldn’t bring their goods to market or were forced to source the currency on the black market. In either case, the end result was spiking inflation.

Egyptian officials said earlier this week that they are working on clearing the import backlog. President El-Sisi also said banks would help secure the necessary foreign currency in a matter of days.

By canceling the February decision, the central bank said that importers now could just use collection documents for their operation. Such a step could help allay market concerns as inflation accelerated to its fastest level in almost five years.

Analysts have said clearing the import backlog was crucial to ensure a stable supply of foreign exchange — a development that could open the door for another possible devaluation.

The hard currency crisis has emerged as a key challenge for the nation hit hard by the economic shockwaves of Russia’s invasion of Ukraine.

Earlier Thursday, President Abdel-Fattah El-Sisi approved a policy outlining a regulatory framework aimed at defining the relationship between the public and private sector in various parts of the economy. The plan may see the state lessening its involvement in some sectors and completely exiting others. In another government move expected to help workers who have been complaining about the rising cost of living, the planning ministry announced on Thursday an increase in the minimum wage of private sector employees.