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Egypt Plans for a Dynamic Dollar Exchange Rate of EGP 39.6 by 2028

January 10, 2024
Photo credit: Amwal Al Ghad.

In the midst of a tough economic situation, Egypt is dealing with ambitious goals, constant hurdles, and the need for resources. The country’s road to economic recovery has been steep. With a new year ahead, the nation has various plans to put into action to make its financial plans work. However, there are multiple factors at play.

Egypt’s economy took a wild turn in March of 2022, with the Egyptian pound plummeting against the USD in both official markets, dropping from EGP 15 to EGP 31 and surpassing EGP 50 in the parallel markets. This upheaval set the stage for a series of economic challenges.

Hala El-Said, the Minister of Planning and Economic Development, stated that in FY 2022/2023, GDP surged to EGP 10.2 trillion, which has put Egypt in the face of significant hurdles, resulting in a USD 4.71 billion (EGP 145 billion) current account deficit, equivalent to 1.42 percent of the USD 330.1 billion (EGP 10.2 trillion) gross domestic product (GDP) at the official market rate.

Despite these challenges, the Egyptian government has outlined ambitious economic objectives. They aim to reduce inflation to an average of 9.2 percent between 2024 and 2028, with a further target of five percent by 2030. Additionally, there are plans to decrease the annual current account deficit to 2.6 percent of GDP on average from 2024 to 2028. These goals are detailed in a document awaiting official approval but open for public discussion.

Egypt’s real GDP growth is projected at 4.1 percent in 2024 and the US dollar exchange rate to jump to EGP 39.7 through the end of the year, according to Focus Economics panellists. Cairo Capital Securities (CCS) anticipates the Central Bank of Egypt (CBE) adopting a free-float system, potentially pushing the USD/EGP rate to around EGP 40 in the second half of 2024.

Amid these developments, Egypt actively pursues the completion of a four-year loan program with the International Monetary Fund (IMF), aiming for access to USD 3 billion in eight installments. Key commitments under this program include implementing flexible interest and exchange rate regimes, promoting private sector participation, reducing debt and inflation levels, and offering stakes in 35 state-owned companies to strategic investors by 2024. A mission from the IMF is expected to visit Cairo in January to finalize a new timeframe for the loan agreement.

Despite a surge in headline inflation rates, reaching 40.3 percent in September 2023, there is a silver lining as the inflationary trend began to decelerate in October. The annual headline inflation rate decreased to 36.4 percent in November 2023, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).

To address a USD 17 billion (EGP 525 billion) financing gap by 2026, Egypt actively seeks additional funding, with projections indicating a need for between USD 6 (EGP 185 billion) to USD 8 billion (EGP 247 billion) for the fiscal year 2023/2024.

As Egypt’s journey to economic recovery hinges on the effective implementation of proposed reforms and the success of its financial strategies, the Egyptian government remains steadfast in its commitment to reduce inflation and decrease the annual current account deficit within the next couple of months.

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