News Analysis: Egypt keen on boosting foreign currency resources

Egypt needs to boost its foreign currency reserves to overcome the ongoing suspension of the business of some multinational firms due to the shortage of U.S. dollars necessary to import their manufacturing components, said Egyptian economic and financial experts.

General Motors and LG, besides several other firms, have recently announced temporary suspension of their businesses at the most populous Arab state over the unavailability of necessary foreign currency and gave their workers paid vacations until further notice.

LOW FOREIGN CURRENCY

In 2011, the country had 36 billion dollars of foreign currency reserves at the Central Bank of Egypt (CBE), but it lost about 20 billion dollars of them over the past few years of political turmoil and instability that it now stands in January 2016 at 16.477 billion.

The CBE adopted a new policy to limit dollar trade in the black market, limiting dollar deposits to 50,000 per month, which crippled investors and importers who need foreign currency to maintain their businesses.

In late January, the CBE decided to raise the ceiling of dollar deposits needed to import basic commodities to 250,000 dollars per month, which somehow relieved some investors but did not put an end to the suffering.

"There is no way to overcome the ongoing issue except through making foreign currency available and cancel the decisions limiting the dollar deposits at banks," said Ehab al-Desouki, head of the Economy Department of Cairo-based Sadat Academy.

He added that the Egyptian government needs to work hard to activate the declining tourism sector, attract more foreign investments and cancel the administrative decisions that specify an exchange rate different from that in the real market to overcome the current issue.

"In fact, we understand that it is not easy to provide sufficient dollars because the sources of foreign currency, including tourism, foreign investments, the exports and remittances of Egyptians abroad, take time to show their affect," the expert told Xinhua.

EXCHANGE RATE UNIFICATION

The CEB pumps about 120 million dollars into the other banks in the country through three auctions every week, the banks sell the dollar to its clients at a different rate with a slight increase from 7.73 to 7.83 Egyptian pounds, the exchange offices do the same, and the black market uses the shortage to sell the dollar at about 8.65 to 8.70 pounds.

"The CBE must unify the exchange rate of foreign currency as it cripples investors, discourages businesses, perplexes trade and violates International Monetary Fund's treaty which is unfavorable for the country's investment environment," said Fakhry al-Fiky, economic analyst and former assistant to IMF executive director.

Fiky explained that in order to unify the exchange rate in Egypt the country needs more foreign currency reserves at the CBE by the new fiscal year starting in July to be able to pump enough dollars with a fixed rate at the banks and without the need for clients to resort to the black market.

He said that investors cannot afford buying dollars from the stock market with a big rate difference that marks for them an initial loss even before starting their main business or manufacturing process.

"The more foreign currency we get the more stable the exchange market is," Fiky told Xinhua, noting Egypt is expected to increase its dollar reserves in the very near future by about 5 billion through the aids and loans it gets from China, the World Bank, the African Development Bank and the Arab funds.

CURRENCY RESOURCES

"It is not normal that such huge companies like GM and LG temporarily suspend their business due to dollar shortage, so it means that there is a real problem that might increase if the currency shortage continue," said Mohamed Farid, head of Dcode Economic and Financial Consulting Company and former adviser to finance minister.

Farid, also former vice-chairman of Egypt's Stock Exchange, recommended the Egyptian government to urgently work on boosting the dollar resources through main four axes: getting aids, attracting foreign investments, reviving tourism and revaluating the exchange rate policy.

"Egypt must work on attracting direct and indirect investments as a means of foreign currency to be able to pump sufficient dollars into the market," the expert told Xinhua.

Tourism is one of Egypt's main sources of national income and foreign currency, which brought the country about 13 billion dollars in revenues in 2010 alone.

Fiky said that the tourism ministry has to exert more effort to revive the tourism sector that has been suffering over the past few years due to political turmoil and recently due to the Russian plane crash in Egypt's Sinai and other security issues.

The expert eyed China as one of the promising prospects for tourism in Egypt based on the growing partnership between the two states and the imminent internationalization of the Chinese yawn as a world currency.

"With reviving tourism, rationalizing expenditures, increasing exports to exceed 25 billion dollars per year, raising customs on some imported commodities and improving the investment environment, Egypt can soon boost its currency reserves and reassure investors," Fiky told Xinhua. Enditem