The depreciation of the Egyptian pound against the US dollar will have a limited impact on the government’s targets for the budget deficit of fiscal year (FY) 2015/2016, economists predict.
The Central Bank of Egypt (CBE) has reduced the official rate of the pound against the dollar by 10 piasters during a hard currency tender on Thursday to EGP 7.83, compared with EGP 7.73 on Tuesday.
EFG Hermes Head of Research, Wael Ziada, said that the budget deficit during the current fiscal year will not see much of an impact from the recent 10 piasters move in the official exchange rate especially since Egypt is a country with dollar revenues which tend to mute the impact of devaluation.
CBE allows banks to trade dollars with higher or lower prices than the official rate by up to 10 piasters, while exchange offices get an additional range of five piasters.
Therefore, the dollar price rose to EGP 7.93 for sale and EGP 7.88 for buying at banks on Thursday, while the official rate at exchange offices was EGP 7.98 for sale.
According to Ministry of Finance data, the government expects the budget deficit to reach 8.9% by the end of the current fiscal year.
Chairman of Dcode Economic and Financial Consulting, Mohamed Farid, believes that government estimates on the deficit are unrealistic. He said that the deficit is estimated to jump to 10.2%, due to the decline in the pound exchange rate and lack of new laws that could pump more revenue into the budget, such as value-added tax.
Farid added that Egypt’s external debt stands at $48bn, and will be affected by the pound depreciation, since allocations for paying back those debts will slightly increase.
He added that the economic management of Egypt should evolve to permit the mobilisation of more foreign investment and to raise the dollar resources of tourism, by improving the business practice environment and activating the recently announced economic laws.
Farid said that officials at the Ministry of Finance accounted for an exchange rate of more than eight pounds while studying the budget deficit, which can ease any negative devaluation.
Every year, Egypt imports $60bn worth of raw materials such as wheat and sugar as well as raw materials for manufacturers, putting pressure on the Egyptian currency, especially given the decline in Egypt’s dollar resources during the past four years affected security, economic and political instability.
