Several economic experts agreed that the decision taken by the Ministry of Finance on Sunday to liberalise the customs dollar starting from early September is a strong indicator that the authorities trust the stabilisation of the Egyptian pound (EGP) value over the next period.
Upon the decision, the daily customs dollar rate will depend on the normal exchange rates defined by the Central Bank of Egypt (CBE) to unify procedures for all customs’ items.
The custom dollar liberalisation will have a limited impact on the market prices, the head of macroeconomic analysis at EFG Hermes Holding, Mohamed Abo Basha, told Daily News Egypt, explaining that the customs dollar was defined at EGP 16 while the current value by the CBE is at about EGP 16.6.
“I think that the decision won’t negatively reflect on the inflation indicator over the next months,” Abo Basha added, mentioning that the traders can deal now with the official value defined by the CBE.
In December 2018, Egypt announced ending the discounted customs exchange rate for some imported goods, which are considered non-essential. Since January 2017, Egypt has set a monthly fixed customs exchange rate, following the flotation of the local currency in November 2016.
For her part, Radwa El-Swaify, head of research at Pharos Holding, told Daily News Egypt, that the decision of liberalising the customs dollar is a strong sign that the authorities trust the stabilisation of the Egyptian pound value over the next period.
“The government sees that the pound value won’t witness major fluctuations, so it took such a decision. The authorities believe that the pound value will maintain its average exchange rate or even get stronger,” El-Swaify added.
The EGP will most likely see some further strength over the next six months, building on its 3.9% appreciation against the dollar in the year-to-date, according to Fitch Solutions in its “Africa Monitor: North Africa” report recently released in August.
The report anticipated that the EGP will make further gains against the dollar in 2019, ending the year at EGP 17 against the US dollar, down from EGP 17.16 per US dollar at the time of preparing the report. However, the Egyptian currency will face some further upside pressure as the real interest rate gap between Egypt and the US widens over the coming months.
Furthermore, Egyptian authorities are implementing several actions to strengthen its main resources of the dollars, according to Yomn Al-Hmakki, an economic expert, noting, “the government is enhancing the investment climate to attract foreign investors. The recent decision by the CBE to cut the interest rates is one of the authorities’ actions to improve the business environment for both the locals and the foreigners.”
The receipts of the Suez Canal are increasing as well as the Egyptian expats’ remittances, Al-Hmakki shared, noting, “I think that the value of the pound will get even stronger if we pay more attention to local manufacturing and exports.”
Notably, Egypt’s receipts from Suez Canal increased by 2.8% year-over-year during the first nine months of fiscal year 2018/19, according the CBE in July 2019, explaining that receipts amounted to $4.273bn, compared to $4.158bn in the same period of 2017/18.
Remittances from Egyptian expatriates increased to $3bn in May 2019, compared to $2.1bn in April 2019, CBE said on 26 August.