Difficult move for Egypt, but most understand its necessity

FEELING THE PAIN: A customer exchanges US dollars for Egyptian pounds at a f o re i g n exchange office in central Cairo Picture : REUTERS
FEELING THE PAIN: A customer exchanges
US dollars for Egyptian pounds at a foreign
exchange office in central Cairo.Picture : REUTERS

The pain of Egypt’s currency devaluation may be felt well before the benefits, creating a period of at least several months in which there is little positive news to offset rising inflation and falling living standards, businessmen and economists say.

By bringing the Egyptian pound down to levels which the markets consider fair value, the devaluation promises to attract fresh capital to the country and end a hard currency shortage that has plagued the economy for years.

Corporate executives say they will finally be able to make investment decisions based on a transparent, predictable currency market run by banks, rather than an opaque black market in dollars that swung wildly amid profiteering and speculation.

Despite Egypt’s history of street protests since 2011,there is no indication so far that the devaluation will cause significant unrest, with many Egyptians saying they understand the move.

But Egypt’s other economic problems mean the inflows of hard currency maybe slow to arrive, at least in the huge volumes required to eliminate the dollar shortage and convince investors the pound has stabilised.

Red tape, a sluggish bureaucracy and primitive regulation continue to deter foreign investment.

The cabinet is expected to consider a draft investment law tackling these obstacles, but it could take months to have an impact.

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