Egypt: benefits of a weaker currency emerging

The further falls in the Egyptian pound over the past month will push up inflation and prompt the central bank to deliver more monetary tightening, but there are already signs that the benefits of a weaker currency are materialising. The government announced that close to $1bn of foreign investment entered the country the day after the currency fell to a record low against the dollar earlier this month. Meanwhile, the latest PMI survey suggested that exporters were experiencing stronger external demand even before the very latest falls in the currency. The pick-up in foreign currency inflows into Egypt has enabled the authorities to work through a backlog of imports. And while concerns about Egypt’s fragile public finances have surfaced, the narrowing of dollar bond spreads suggests that investors share our view that the government will be able to muddle through.