Egypt: paving the way for a weaker pound

The past month has brought signs that Egyptian policymakers are trying to simplify the country’s exchange rate setup, which is ultimately likely to result in a weaker pound. Over the past six months or so, Egypt’s government appears to have leaned on state-owned banks to draw down their FX assets in order to prop up the currency. But this cannot be sustained for much longer. And policymakers appear to be heeding calls from the IMF to streamline the exchange rate regime by scrapping an investor repatriation scheme and ending a preferential exchange rate for “non-essential” imports. The next step is likely to be a reduction of backdoor FX intervention and we forecast the pound to record a modest fall from 17.9/$ at present to 19/$ by the end of next year.