After a visit by American Bank experts to Egypt, during which it met with government officials and investors, Goldman Sachs believes that Egypt is living in a state of “great uncertainty” as it faces to a “confused scenario” regarding the handling of its economic crisis.
There is no exchange rate flexibility without liquidity
The “Goldman Sachs” report, which was reviewed by “Sky News Arabia Economy”, indicates that the Egyptian authorities have a clear vision that the transition to greater exchange rate flexibility – which is one of the fundamental reforms required by the IMF – depends on the provision of sufficient foreign exchange reserves to manage the risk of a slippage in the exchange rate after its release, given the government’s reluctance to further weaken the pound.
Goldman Sachs estimates that Egypt needs more than $5 billion in foreign resources to achieve this goal.
The government is relying on providing this necessary stock of dollar liquidity from the government asset sales program, as it prefers some of these assets to be sold before moving to greater exchange rate flexibility, according to the “Goldman Sachs” report.
The report said the program of selling public assets could pick up speed, so some of them will be sold over the next few weeks, but the pace remains slow nonetheless, making Egypt’s economic expectations dependent on the progression of asset sales.
And in light of the delay in the implementation of the government’s asset sale program, due, among other things, to “structural obstacles” and the dispute over its low valuation, “Goldman Sachs” believes that it There will be no transition to a more flexible exchange rate in the coming months, which increases the risks regarding the program of the International Monetary Fund, which considers exchange rate flexibility to be an essential requirement.
“National Security”
The “Goldman Sachs” report comes after statements by Egyptian President Abdel Fattah El-Sisi, who directly confirmed that the Egyptian government would not reduce the exchange rate of the Egyptian pound against the dollar if it affected the lives of Egyptians, whereas that the issue is “national security”.
The official exchange rate has remained stable at around 30.90 pounds to the dollar for more than three months, while Egyptian currency has fallen on the black market to around 39 pounds to the dollar.
The International Monetary Fund has yet to begin a review scheduled for March of the level of progress Egypt has made in meeting its commitments under an agreement the fund reached with the Egyptian government last December.
Despite the pound’s sharp devaluation three times since the outbreak of the Ukrainian crisis, foreign currency is still scarce in the market and vital imports such as manufacturing and agricultural inputs remain without a way into the country.
branching ring!
Goldman Sachs also said in its report that the risks of Egypt securing external financing will remain high given the country’s inability to achieve exchange rate flexibility for the pound.
In December, the fund approved a $3 billion loan for Egypt, which has faced severe financial difficulties since the outbreak of war in Ukraine.
The disbursement of the 46-month programs is subject to eight reviews, the first of which took place on March 15, 2023, according to the fund staff report released in December.
The Goldman Sachs report indicated that Egypt will likely need to implement more adjustments in the current account in order to manage external financing risks.
He pointed out that there are 3 factors that could mitigate the risks that Egypt’s external creditors may face, including its strong willingness to pay, declining external commercial debt and a reduced incidence of debt. social instability.
These factors are represented by the existence of a strong desire and willingness to repay debts, in addition to a relatively low trade balance deficit, with low possibilities of social instability.
Goldman Sachs expects Egypt to slow the pace of implementation of state-led infrastructure projects, which it sees as increasing pressure on scarce foreign exchange resources.
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