US dollar value drops in Egypt's informal market amid unconfirmed news of increased funds

Unconfirmed news about mega investments by the UAE in Egypt, as well as the outcome of an official visit by a delegation from the International Monetary Fund (IMF) to the country, is believed to have led the value of the US dollar to drop in the country's informal market after it had witnessed a record high earlier last week.

The US dollar dropped on Monday against the Egyptian pound in the parallel market to about EGP 50, down from a peak of more than 70 EGP last week.

An IMF delegation, led by the Mission Chief for Egypt, Ivanna Vladkova Hollar, had concluded a two-week official visit to Cairo where the two sides discussed the first and second reviews of the country's reform programme supported by the fund's Extended Fund Facility (EFF). The visit came amid unconfirmed news on the increase in loans the government would receive.

Meanwhile, local and international news outlets reported that the UAE reportedly cut a deal with the Egyptian government to buy vast lands in the Mediterranean Ras El-Hekma resort for US$22 billion. 

"Such news that depends on unofficial sources led the informal market, mostly controlled by supply and demand, the value of the US dollar to fluctuate," economic researcher Ahmed Abdel-Thaher told The New Arab.

"People have been under the impression that a dire shortage of foreign currency would come to an end, which helped, to a great extent, bridge the gap between the official exchange rate and the one defined by the informal market," he explained, predicting that "the green currency may witness further severe fluctuations."

A US dollar is officially equal to about 30.95 at the time of publication.

The Egyptian pound has been struggling against the US dollar for months, leading prices of essential commodities to hike in a country primarily dependent on importation rather than local production.

Egypt's initial agreement with the IMF dictated that the country would benefit from a US$3 billion loan over 46 months, provided that state and military control over the economy are loosened and an exchange rate flexibility is imposed, allowing market forces to determine the value of the local currency.

"The IMF team and the Egyptian authorities made excellent progress on the discussions of a comprehensive policy package needed to reach a Staff Level Agreement (SLA) for the combined first and second reviews of Egypt's economic reform program supported by the IMF," an official statement by the fund cited Hollar as saying.

"To this end, the IMF team and the Egyptian authorities have agreed on the main policy elements of the program. The authorities expressed a strong commitment to act promptly on all critical aspects of Egypt's economic reform program," the statement read.

On Thursday, 1 February, the Central Bank of Egypt (CBE) raised interest rates by two per cent in a bid to control the high inflation, a day before the IMF Managing Director, Kristalina Georgieva, said that Egypt and the fund had held talks about the augmentation of the Egyptian loan programme, without elaborating on details.

Earlier last week, the Egyptian cabinet lowered the state budget for public investments for the fiscal year (FY) 2023/2024 by 15 per cent.

The Egyptian government also postponed working on new projects until June, whether through tenders or no-bid contracts.

Meanwhile, the prices of gold have declined over the weekend after they had earlier soared for also being linked to the US dollar.

The different categories have so far registered an average decline of 400 EGP. However, according to a local gold trader, "the prices remain uncertain amid such an increasing demand, especially coins and gold bars, which can be resold involving little labour costs."

In recent months, thousands of citizens resorted to purchasing gold to preserve the value of their savings in local currency, which led the prices of the precious yellow metal to skyrocket.