Egyptian pound - Creative Commons via Wikimedia
CAIRO - 13 December 2022: Egypt’s Cabinet denied allegations and claims that are being promoted regarding the exchange rate of the pound and the allegation of a shortage of dollars inside the country.
It stated in a recent report that Egypt has recently adopted a flexible exchange rate policy, describing it as the most appropriate one in the case of open economies that adopt an independent monetary policy.
The report said that this policy contributes to increasing the level of exports due to their increased competitiveness and reducing the attractiveness of imports, due to its high prices, especially when production structures are flexible.
“In conjunction with the implementation of this policy, the government adopted many measures aimed at increasing the levels of agricultural and industrial production,” the report noted, elaborating that those measure aim to reduce the levels of vulnerability of the Egyptian citizen from the impact of price hikes resulting from the liberalization of the exchange rate, which has proven to be very successful in increasing production levels of some agricultural and industrial commodities recently, and in increasing the supply rates of the main agricultural crops, especially wheat.
The report indicated that this flexible exchange rate policy is one of the pillars supporting the inflation targeting policy adopted by the Central Bank of Egypt (CBE) to achieve price stability and contain inflation rates at low levels that do not harm consumers and investors.
According to the report, the effect of passing changes in the exchange rate to local prices is usually temporary, and it peaks in the wake of adopting flexible exchange rate policies, then it begins to gradually recede, which is what the Egyptian economy witnessed in the wake of the previous wave of exchange rate liberalization within the framework of the 2016 economic reform program.
It added that the government is adopting a package of structural reforms within the framework of the National Program for Economic and Social Reform, to meet the expected impact of the exchange rate flexibility on goods and services; This would reduce price levels and create more job opportunities (6 reform axes, 32 policies and objectives, and 88 priority structural, procedural and legislative reforms out of a total of 310 reform measures).
The Cabinet report stated that the CBE is continuously pumping dollar liquidity; To release goods accumulated in ports, and give priority to commodities and production components; In order to ensure that the productive process does not stop, in addition to the formation of a working group from the Central Bank and the Ministry of Finance to determine the dollar gap for the fiscal year 2022-2023 and develop different scenarios for how to bridge the dollar gap in the budget for the fiscal year 2022-2023, in addition to issuing a set of directives for a number of ministries in order to rationalize dollar spending.
With regard to total hard currency flows into Egypt, and how to bridge the dollar gap, the cabinet report indicated that the government periodically follows up the position of foreign exchange resources and uses in coordination with the Central Bank with the aim of reducing the dollar gap and ensuring the provision of foreign exchange necessary to meet the basic needs of the Egyptian economy.