News Analysis: Rising remittances, more foreign investment push up Egyptian pound

The Egyptian pound recently saw recovery due to, among other things, a significant rise of remittances from expatriate Egyptians and increased confidence of foreign investors in the country's banking system.

According to a statement of the Central Bank of Egypt, the U.S. dollar, down from 18.80 pounds last week, was bought for about 17.70 at most banks on Thursday, the lowest rate in the past month.

The average dollar-pound exchange rate in the black markets on Friday has declined to 17.40 on Friday, after it hit 19 earlier in the week, said Fathy Malak, the owner of a foreign exchange company in Cairo.

REASONS FOR POUND RISE

"Rising remittances from expatriate Egyptians is a main reason for pumping more dollars into the banks," said Yasser Tahoon, a professor of economics in Tanta University.

The exchange rate of the dollar has become "fair and reasonable for the expatriates abroad," Tahoon told Xinhua.

On Monday, the central bank said remittances from expatriate Egyptians rose 11.8 percent in the fourth quarter of 2016, with most of the increase coming after the pound was floated three months ago.

About 3.3 billion dollars were remitted after flotation, it added.

In Egypt, remittances are considered an important source of hard currency, as the country has seen a sharp decline in tourism, foreign investment and export revenues following the 2011 revolution.

Tahoon said remittances boost the supply of the dollar, and eventually drive down its rate against pound.

Moreover, Egypt's net foreign reserves reached 26.36 billion U.S. dollars in January, up from 24.27 billion dollars in December, after it reached 36 billion before the 2011 uprising.

The central bank said commercial lenders had attracted nine billion dollars since flotation, which, according to Tahoon, covered importers' all demands for the raw material and spare parts.

"Foreign investment was so active in the few past weeks," he said.

Exports increased by two billion dollars, which also helped suppress the dollar demand, official statistics show.

According to Malak, the demand for dollar on Friday is "almost zero," in the light of the retreat of importers of cars, poultry, and cell phones which constituted the largest segment of dollar consumers.

Foreigners had bought 1.15 billion dollars' worth of treasury bills as of last week, 20 times that of the number in October.

"Trust in the system is growing," said Mokhtar el-Sherief, an economics professor in Cairo University.

Germany has lifted its ban on travelling to Sharm el-Sheikh. Russian tourists are on the way back. Italy's oil company Eni announced that it would soon allow Egypt to export gas.

All of these are "positive indexes" for the recovery of the Egyptian economy and currency, said el-Sherief.

"Egyptians currency will recover in six months," the professor predicted.

TEMPORARY DECLINE OF DOLLAR

Rashad Abdou, the chairman of the Economic-Egyptian Forum, said that the pound recovery is slight and temporary as "the dollar will rise up again in the short run."

He expected the exchange rate to exceed 20 ahead of Ramadan the holy month, when merchants are expected to import most of the month's food items.

Abdou pointed out what is happening in Egypt is "neither liberation nor flotation, but a managed freeing of the currency."

The central bank purchases dollars and doesn't sell, and instructed the banks to reduce the dollar prices, he explained.

According to Abdou, the merchants will head back to the black markets to cover their needs, and the dollar will hike again. Endit