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Egypt—Hard currency shortages have eased

Greater flexibility in the Egyptian pound has cleared the FX backlog allowing local business to make their import payments and foreign businesses to repatriate profits.

Egypt decided to float the pound in November last year as the economy struggled to adjust to lower energy prices and capital outflows over the last three years. Like most developing countries reliant on energy exports, Egypt initially tried to stem the downward pressure on the currency. But the sharp decline in foreign reserves and a reluctance to devalue the pound led to chronic hard currency shortages, which impeded the ability of businesses and households to make foreign payments.

The currency adjustment has been unpleasant—the pound has fallen close to 50% since November causing inflation to rise 30% p.a. But the weaker currency should increase the competiveness of Egypt’s exports and give authorities the scope to implement other necessary reforms.