The depreciation of the Egyptian pound in the near future is not alarming as the country's foreign currency reserves have dropped drastically since 2011 and political instability is looming large, financial experts and economists said.

The Egyptian pound on Saturday slid to record low against Western currencies in ten years. It depreciated by 0.14 percent against the U.S. dollar which rebounded to 7.022 pounds for selling and 6.98 pounds for buying.

Egypt is facing an ailing economy with a budget deficit of over 26.4 billion dollars, and has lost about 20 billion dollars of foreign reserves over the past 30 months following the 2011 upheaval that toppled the ex-regime.

Even worse, global rating agency Standard & Poor's cut in May the country's long and short term sovereign credit ratings from B and B- to C and CCC+, expecting "financing pressures to remain elevated."

"The depreciation of the pound vs the dollar has been expected due to the declining foreign currency reserves and the negative S&P credit rating of the country," financial expert Mohsen Adel told Xinhua.

Adel, who is also deputy chairman of the Egyptian Association for Financial and Investment Studies, said that the S&P report was issued when Egypt's net foreign currency reserves was as low as 14.4 billion dollars.

Thanks to deposits from Libya and Qatar, foreign reserves rose to 16 billion dollars at the end of May, he said, citing a latest report of the Central Bank of Egypt (CBE).
Adel added that the current exchange rates hikes are temporary as Egypt's economic deals with some Arab and foreign states are expected to bring foreign funds and may lead to the dollar's retreat.

The recent financial aids from Saudi Arabia, Libya and Qatar, besides a long-awaited loan of 4.8 billion dollars from the International Monetary Fund (IMF) and other organizations "are expected to provide a foreign currency cover at the CBE," said the Egyptian expert.

Mohamed Abdel-Aziz Hegazi, finance professor at the American University in Cairo, said that the unbalanced exports and imports, as well as the declining tourism revenues along with the installments of foreign debts, which are expected to reach 44 billion dollars in total, are reasons behind the depreciation of the pound versus Western currencies.

"The pound decline has been expected and it will continue to slide in the near future over prospected political instability due to June 30 demonstrations urged by opposition and activists to call for early presidential elections," Hegazi told Xinhua.

He noted the upcoming protests would negatively affect the economy and scare off foreign investors in the long run even if they could not achieve their political purposes.
Hegazi commended the government success in saving the foreign currency reserves by opening communication channels with Arab and foreign countries, reiterating that the Islamic and Arab funds will work as alternative for the IMF rescue loan in the short run.

"Egypt will rely more on foreign loans to maintain foreign currency reserves," the expert said, referring to borrowing as "the only option" for the government.
He asserted that the Egyptian government was keen to stick to the IMF reform conditions, but for some political reasons the loan had been delayed.

Hamdy Abdel-Azim, economics professor at Sadat Academy and Cairo University, echoed Hegazi's opinion that the shortage of foreign currency and the gap between the
country's exports and imports were among the reasons behind the pound depreciation.

"The CBE had to interfere via a new system to rationalize foreign currencies and create a balance in the markets," he told Xinhua.

He added that imports of foodstuff, diesel and other necessities increased demands for dollars while the revenues of exports and tourism could not provide sufficient coverage of foreign funds at the CBE.


Source: xinhuanet.com