Egyptian pound slides further after float

AP News
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Posted: Nov 06, 2016 9:23 AM
Egyptian pound slides further after float

CAIRO (AP) — The Egyptian pound slid against the dollar on Sunday, the first full business day since Egypt took the unprecedented step of floating its currency and significantly hiking fuel prices.

The bold double move met key demands set by the International Monetary Fund for a much-needed $12 billion loan to overhaul the ailing economy, but has also led to price increases on a number of goods, including food and transport.

Banks were selling the U.S. currency at around 16 pounds while buying it at around 15.5. The Central Bank on Thursday devalued the pound by 48 percent, setting a holding exchange rate of 13 pounds to the dollar that was shattered within hours.

Prior to the floatation, the dollar's official exchange rate was nearly nine pounds. Earlier last week, it traded at an all-time high of over 18 pounds on the parallel black market.

The floatation was followed just hours later with a hike in the price of fuel by between 30 and 46.8 percent, a move that had an immediate knock-on effect on the price of a wide range of food items and transport.

Egypt and the IMF reached a provisional agreement on the $12 billion loan in August, but the IMF's executive board has yet to ratify the loan, which is likely to happen before the end of the year. Egyptian officials say the agreement with the IMF would restore investors' confidence and put the country on the path to economic recovery.

Separately, shares on the Egyptian stock market rose on Sunday for the second successive business day, with the benchmark EGX30 rising by a 6.12 percent. It closed 3.35 percent up on Thursday.

The floatation and the hike in fuel prices are part of a package of unpopular measures recently taken by President Abdel-Fattah el-Sissi's government to revive the economy, including the introduction of a 13-percent value added tax, higher sugar prices for ration card holders and a rise in the price of household electricity.

In addition to growing domestic and foreign debt, Egypt has been grappling with inflation and unemployment rates of around 14 and 12 percent, respectively, an acute foreign currency shortage and a slump in tourism.

Its security forces are battling an insurgency led by an Islamic State affiliate in the strategic Sinai Peninsula, and smaller groups have claimed responsibility for a series of assassination attempts against government and security officials in Cairo in recent weeks.

The rising cost of basic goods has deepened the hardships facing middle class and poor Egyptians. Rides on Cairo's communal minibuses, a popular form of transport, now cost up to 20-25 percent more. Residents are also reporting rises in the price of fresh vegetables and fruits due to higher transport costs.

Authorities, however, have kept fares on public transport, including Cairo's subway, unchanged. Many Cairo taxi drivers are refusing to switch on their meters until the government announces new settings that reflect the higher fuel prices.

Foreign currency is still hard to come by in Egypt. Bank employees on Sunday said individuals could only buy dollars from the banks if they prove they are soon to travel abroad, and that recently introduced restrictions on credit card spending abroad remained in force.

There has been no sign of street protests against the latest measures, but it's too early to rule out the likelihood of unrest since the full extent of the fallout has yet to be seen.

Authorities are not taking any chances. They have in recent days detained dozens of Islamists in connection with calls for street demonstrations on Nov. 11 to protest the government's handling of the economy. They accuse the banned Muslim Brotherhood group of being behind the calls for protests. Recent Brotherhood statements have called on Egyptians to rise up against the government, without setting a date.

El-Sissi has repeatedly told Egyptians in recent weeks that tough measures were needed to remedy the economy and that his government intended to do everything it could to cushion the impact of economic reforms.