In a bid to conform with the requirements of the IMF for a $12 billion loan needed to stimulate the economy, the Egyptian government has announced a flexible exchange rate policy allowing its currency to trade freely. This is part of measures to stabilize an economy crippled by a dollar shortage that has raised concern about social unrest.
“It’s a historic move for Egypt. It proves the government is serious about the reform.” Bloomberg quotes Hisham Ezz Al Arab, chairman of Commercial International Bank Egypt, the country’s biggest lender listed on the stock exchange as saying.
The country has been grappling with scarcity of foreign exchange as its foreign currency reserves have dropped to 40% of what it was under former President, Hosni Mubarak and his Islamist successor. Parallel market rates are almost double the official rates and the IMF stipulated that a free forex market would be essential before it could release the bailout funds requested.
On the streets though, trepidation follows the announcement as Egyptians know that their already insufficient finances are going to take a further hit, with no guarantees of the policy achieving its intended aim.
“It either kills the black market or flourishes it depending on whether the central bank pumps dollars in the market or not. People are still hesitant, waiting to see what happens.” Tamer Fathy, manager at the Al Masriya currency exchange in Cairo says.
Others believe that the policy was in the interest of a certain few elites in the country with no consideration for the masses. Ahmed Hassan, 45, an accountant with four children was quoted as saying ‘These decisions are not studied enough and are serving the special interest of a certain group of people. How can we make ends meet with the expected price increases while salaries aren’t increasing? We want to be able to buy our needs — nothing more. I don’t want to have to work a second job’.
Immediately though, Egypt’s stocks have risen by 8% in response to the announcement of the flexible exchange rate.