Central Bank’s FX Policy Wins Presidential Backing

Egyptian President Abdel-Fattah El-Sisi urged his government to cut back on imports, backing the central bank’s efforts to preserve the country’s foreign-exchange reserves.

Egypt imports “many unnecessary products that have domestic alternatives with competitive prices and higher quality,” the presidency said in a statement after a meeting between El-Sisi and cabinet ministers on Saturday. Imports should be “rationalized” so as not to pressure the “state’s foreign currency resources,” the presidency said.

The comments echo the views of central bank Governor Hisham Ramez, who has repeatedly blamed imports of consumer goods such red apples and cars for the foreign-currency crunch. Ramez has also called for reducing imports.

The president’s remarks will empower “the central bank in choosing which sectors get dollars,” said Ziad Waleed, an economist at Cairo-based investment bank Beltone Financial. “Businesses whose work is deemed as unnecessary will suffer from more foreign currency shortage in the coming period.”

The chaos accompanying the 2011 popular uprising against President Hosni Mubarak sent investors and tourists fleeing, sharply reducing Egypt’s foreign currency inflows. Reserves fell to $18 billion in August, 50 percent below their 2010 levels. That’s enough to cover just about 3 months’ worth of merchandise imports.

The central bank tightly manages the exchange rate of the pound, which has been fixed at 7.83 a dollar since July. Dollars can be acquired on the black market at about a 3 percent premium. Restrictions on foreign currency bank deposits have reduced the ability of importers to use dollars acquired from the black market in transactions.

Source: Bloomberg