World Bank has recently issued a discouraging statement about the Egyptian currency claiming that it is too overvalued and expensive. Under the current conditions, there are no other options left for the Egyptian government but to consider a devaluation of their currency.
The Egyptian pound is the latest victim of the cascading trends in the global economic conditions. To this end, the Egyptian government is trying to make ends meet by depending on a new loan from the International Monetary Fund IMF.
At the same time, Goldman Sachs Group and Deutsche Bank AG have issued a projection that the Egyptian Pound is around 10 percent overestimated. In contrast, the statistics issued by Citigroup indicate that it is only 5 percent hyped. The Egyptian economy, with an estimated $400 billion evaluation, is currently facing a state of emergency on account of the sudden 15% crash of the Egyptian pound.
Rapidly Changing Geo-Economic Conditions
At present, the economic condition of the world has worsened on account of the imbalance created by the Russian invasion of Ukraine. As a direct consequence, the prices of food and energy-based stocks are not performing to their full potential when the remainder of the stock market is facing challenges due to COVID destruction. At the same time, USD has entered into an unnatural rally which has also increased pressure on the Egyptian pound.
At the current pace, the Egyptian pound is facing the risk of a 23 percent immediate devaluation that will restore balance in the local economy and reduce the funding gap, as per Bloomberg analysts. While the stock market is in a state of shock, the condition of the derivatives market is also not very encouraging. After a record drop at various derivative exchanges, the Egyptian pound sustained 11 weeks of consequent losses in offshore markets. It marks the worst record in a decade.
No country with an IMF deal has a stable or productive economy. Egyptian government signed a $12 billion deal with the devil in 2016. As a result, the country was compelled to adopt measures that peeled off foreign investment interest in the region slowly. Citing the stable currency of Egypt, high-interest rates, and a balanced credit history made Egypt the centre for foreign investments that poured billions of dollars into the debt market.
However, under the current circumstances, the inflation rates in the country are adjusted to be less than zero. Meanwhile, foreign investors withdrew around $20 billion from the Egyptian market in a short period. Despite all challenges, the Central Bank of Egypt fulfilled the usual benchmark.
However, as per Bloomberg analysis, the bond by Egyptian Central banks has lost 2 percent while the foreign investors are nowhere to be seen. Anna Friedman from Deutsche Bank Research claims that the pound devaluation is going to be significant, but it may occur at a slower pace rather than a sharp decline.