Fitch Agency talks about the pros and cons of Egypt’s economic reforms

Fitch Ratings Agency said on Thursday that Egypt’s reforms will support banks’ foreign liquidity, but in return will put pressure on capital.

Cairo carried out economic reforms, most notably reducing the exchange rate of the pound to about 50 pounds to the dollar from the level of 31 pounds, near which it had stabilized for nearly a year.

The devaluation of the currency comes as part of a financial support agreement worth $3 billion that Egypt signed last week with the International Monetary Fund.

Egypt also recently signed an agreement with an Emirati sovereign fund to develop the Ras al-Hikma region worth $35 billion.

Fitch Agency said that the Egyptian deal amounting to $35 billion with the UAE to develop the Ras El Hekma area would relieve external liquidity pressures and facilitate adjustment of the exchange rate.

She added that “Egypt will continue to face major economic and financial challenges that will put pressure on its credit situation,” indicating that “it expects inflation in Egypt to decline on an annual basis in the second half of this year due to the high comparison basis.”

The agency noted that “the macroeconomic situation in Egypt will remain difficult in the fiscal years 2024 and 2025, with high inflation rates and relatively weak growth.”

For many years, Egypt has relied on financing granted by the International Monetary Fund through loans or on deposits from Gulf allies.

On Thursday, an Egyptian Cabinet statement quoted Hassan Abdullah, Governor of the Central Bank of Egypt, as saying that the demand for the dollar had begun to decline due to the supply provided by the bank.

The statement said, “The demand for the dollar, as confirmed by the Governor of the Central Bank, has begun to decline in light of the wide availability made by the bank.”

Egypt is going through one of the worst economic crises in its history after the annual inflation rate reached a record level, driven by the decline in the value of the local currency and the shortage of foreign currency in light of the import of the majority of food.