Against the backdrop of the recently announced UAE FDI inflows, the Egyptian pound is likely to trade at USD 45 by the end of the year, exceeding the initial forecast of USD 55, according to Oxford Economics Africa.
Last week, the Egyptian government signed a USD 35 billion deal with ADQ, an Abu Dhabi-based investment and holding company, to develop a 45 thousand acre plot of land along Egypt’s northern Mediterranean coast, called Ras Al-Hikma.
“The Ras Al-Hikma deal will be a game changer for Egypt in the short to medium term,”a brief report by Oxford Economics said on Monday. “The volume of funds coming in the next two months is approximately equivalent to the country’s foreign currency reserves and is almost three times the average ??Annual foreign direct investment flows.”
The announcement came at a time when Egypt is facing one of the worst currency crises in decades.
Earlier this month, Oxford Economics predicted that the currency would be between 55 and 60 against the dollar by the end of 2024.
Egyptian prime minister Mustafa Madbouly said on Friday that the Ras Al-Hikma agreement includes the transfer of 24 billion dollars to Egypt in the form of foreign direct investment. In addition, a total of USD 11 billion of UAE deposits at the Central Bank of Egypt will be converted into Egyptian pounds and allocated to the Ras Al Hekma project.
According to Madbouly, ADQ is expected to transfer the first payment of 10 billion dollars this week. The agreement provides for the transfer of another 14 billion dollars after two months.
Since the announcement, the Egyptian pound has made great strides on the black market, jumping from about USD 64 to USD 52. However, the official exchange rate remained unchanged at 30.89 dollars.
The pound is expected to depreciate in the official market as soon as Egypt finishes the loan agreement with the Monterrey International Fund, which insists on adopting a flexible exchange rate regime.
Oxford Economics said that the fall in the pound will be less severe than initially expected due to last week’s agreement.
The report added that besides the IMF funds, Egypt is still expected to receive more foreign currency from similar deals with other GCC countries and the proceeds from the state asset monetization program, which will be enough to fill the financing gap in the country.
However, the Oxford-based think tank ruled out that the Ras Al-Hikma deal could save the Egyptian economy in the long run.
“We still need to see fiscal discipline, which we are not currently doing, before we can say that the current economic crisis is a one-time crisis and not something that will be a recurring problem in the future,”the report said.
