Egypt’s central bank shocked the nation on Wednesday by letting the pound float freely in the market, slashing its value by more than a third against the dollar. The move was part of a package of reforms to secure an $8 billion loan from the International Monetary Fund (IMF) and attract foreign investment.
But while the government and the IMF hailed the decision as a bold step to restore economic stability, many Egyptians expressed frustration and anger over the expected rise in the cost of living. Prices of basic goods such as diapers, chicken, and bread have already soared in recent months, as the official exchange rate lagged behind the black market one.
A painful adjustment
For millions of Egyptians who live below or near the poverty line, the devaluation means more hardship and uncertainty. The World Bank estimated that nearly 30 percent of Egypt’s population was poor in 2019, and the coronavirus pandemic has worsened the situation.
“I don’t know how we will survive,” said Eman Hussein, a doctor who earns about 3,000 pounds ($60) a month. “They should have delayed this step for a while because if the government doesn’t provide dollars, we will be back in the same spot.”
The central bank also raised interest rates by 600 basis points to 27.25 percent, the highest in the world, to curb inflation and prevent capital flight. But this could hurt businesses and consumers who rely on credit.
“Even if the devaluation will have a positive impact on the economy, it will still negatively affect citizens,” said Mohamed Gad, an economics researcher. “Another devaluation and further increases in prices of all goods while wages are low.”
A long-term vision
The government and the IMF, however, argue that the devaluation will help boost Egypt’s exports, tourism, and remittances, which are the main sources of foreign currency. They also say that the flexible exchange rate will eliminate the black market and improve transparency.
The IMF’s mission chief for Egypt, Ivanna Vladkova Hollar, praised the central bank’s measures as “decisive steps to move to a flexible exchange rate system, starting with unifying the exchange rate between the official and parallel market rates.”
The IMF also approved the $8 billion loan, which is an expansion of the previous $3 billion deal signed in December 2022. The loan comes with conditions such as reducing subsidies, reforming taxes, and privatizing state-owned enterprises.
The government says that these reforms are necessary to achieve sustainable growth and create jobs, especially for the youth who make up more than 60 percent of the population. It also says that it will provide social protection and support for the most vulnerable segments of society.
A glimmer of hope
Despite the challenges and the discontent, some analysts and observers see the devaluation as a sign of hope and opportunity for Egypt, which has suffered from political and economic turmoil since the 2011 uprising that toppled longtime ruler Hosni Mubarak.
“The devaluation is a positive step that will help Egypt overcome its chronic balance of payments problem and restore confidence in the economy,” said Ahmed Kamaly, a professor of economics at the American University in Cairo. “It will also encourage foreign direct investment and portfolio inflows, which will create more jobs and income for Egyptians.”
Some sectors, such as agriculture, textiles, and tourism, could benefit from the weaker pound, as they will become more competitive in the global market. Some entrepreneurs and innovators could also seize the opportunity to launch new ventures and products that cater to local and regional demand.
“The devaluation is a challenge, but also a chance to rethink our economic model and diversify our sources of income,” said Amr Sheta, a young businessman who runs a solar energy company. “We have to be more creative and resilient, and focus on the long-term vision.”
Source: Reuters
