Through its distinguished monetary policy and wise decisions, the Central Bank of Egypt (CBE) has managed to maintain exchange rate flexibility.
With all the economic changes, banks have emerged as a fundamental pillar in supporting various economic sectors by providing the necessary cash to meet import needs.
In this context, the chairperson of the Federation of Egyptian Banks (FEB) stated yesterday that all banks in the country are committed to providing the necessary cash flows to import the requirements of economic activities without imposing restrictions or conditions on customers related to procuring foreign currencies from outside the official banking system.
FEB chairperson was right to point out the waves of malicious rumours that aim to obscure the truth and negatively affect the efforts of CBE to enhance the stability of foreign exchange conditions and achieve price stability in the markets.
The statement of the FEB Chairperson was rather brief, but they brought back to mind the course of the plans and strategies of CBE since 6 March 2024, when the exchange rate was liberalized and unified, and thus the parallel market, known as the black market for foreign exchange, disappeared. So, saying that there are any restrictions whatsoever to push customers to meet their foreign currency needs to cover their import operations is illogical. There is no source of foreign currency currently other than banks after the black market was eliminated.
Some may ask though: what is the evidence that banks have arranged customers’ foreign currency needs to settle their current and future import operations once the documents are circulated and the goods are released from customs ports? To them I say that there are currently no backlogs or waiting lines in the banking system units to arrange foreign currency, taking into consideration that the restrictions that were in place to limit the implementation of foreign trade transactions to documentary credits only, without collection documents, have been eliminated. On the other hand, no goods were seized or accumulated in customs due to the lack of foreign currency.
Did you know that Egypt’s imported goods were worth about $42bn during the first half of this year alone? All of this was done through documentary credits and collection documents provided by Egyptian banks to customers. And of course, they will provide for their needs in the second half.
Banks provided the foreign currency needed to import wheat and all strategic goods, raw materials and production requirements to localize industries and provide import alternatives. CBE also prioritizes the dollar component to provide necessary and in-demand goods and products in the market, such as baby formula, chronic disease medications and some food items, to ensure there is a balance in prices and markets.
The debt repayment schedule announced by the World Bank showed that Egypt’s obligations until the second quarter of this year amounted to a fully paid $30bn. The total obligations this fiscal year amounted to $60bn.
If we pay such amounts in foreign currency to import people’s food and we manage such huge amounts to pay our international obligations, whether loan instalments or interest, without any delay or hesitation, how can we say that there are attempts to impose restrictions or conditions that prevent customers from obtaining their foreign currency needs from their banks? There is no logical justification for that.
Do we not remember how CBE directed banks to lift the limits on credit cards in foreign currency abroad? And its directive to banks to increase foreign currency amounts for travellers? How can this be done without sufficient foreign currency in banks?
Despite the difficult global economic conditions, regional geopolitical situations, and Red Sea tensions that led to the Canal losing nearly 60% of its usual revenues, Egypt was able to compensate for that deficiency from other sources.
Egypt attracted about $121.5bn during the fiscal year 2023/2024, as foreign direct investment quadrupled under the momentum of the famous Ras El Hekma deal, recording $46.1bn. Indirect foreign investment or foreign investors’ holdings of public debt securities touched $37bn, and remittances from Egyptians working abroad were finally freed of the temptations of the black market and turned into savings and investments in the banking system worth about $21bn, not to mention the improvement in tourism revenues and exports.
Next week, the Director of the International Monetary Fund (IMF) and her team of Fund experts will arrive in Cairo to complete the fourth review and study the possibility of reviewing the time frames for some items that may alleviate the pressure of rising prices on citizens.
CBE, with its distinguished monetary policy and its successive wise and governing decisions, has succeeded in achieving exchange rate flexibility, which has ensured the continued flow of foreign currency from all sources. It also eliminated the risks of recurring foreign currency liquidity gaps that are difficult to cover.
Remember that CBE has net foreign exchange reserves of $47bn. Egypt imports an average of $7bn worth of goods and products every month, estimated at $70bn. The current average reserves can cover about eight months of imports – a level that exceeds the global average by three months.
I repeat: Watch out for economic rumours. They do more damage than the normal rumours we know of because they can hurt both citizens and their homeland at once.
Mohamed Abdel Aal – Banking expert
