Goldman Sachs advises against further devaluation of EGP amid economic challenges

The American Investment Bank, Goldman Sachs, stated in a new research memo, that it is currently not appropriate to implement any further devaluation of the Egyptian Pound against the US Dollar, especially given the insufficient foreign liquidity held by Egyptian banks.

 

The bank believes that, under the current circumstances, it is unlikely that any reduction in the value of the Pound would achieve the goals of the Egyptian government. It emphasized that the decision ultimately rests with the government and, to some extent, depends on the ongoing negotiations with the International Monetary Fund (IMF).

 

The bank pointed out the resilience of the Egyptian Pound against the Dollar in the parallel market in recent days, reinforcing market participants' expectations of an imminent official devaluation of the Pound.

 

The bank anticipates the government continuing to manage the official exchange rate in the short term – perhaps with more flexibility – noting that the primary objectives of Egypt's foreign exchange rate policy are to unify the exchange rate, eliminate the parallel market entirely, and ensure the stability of the Pound in the medium term.

 

To achieve these goals, the bank set two conditions. First, the demand for foreign currencies should be proportionate to the expected incoming flows, regardless of the chosen foreign exchange rate in the medium term. The second condition is to ensure the availability of foreign currencies at the officially specified rate at all times, especially among major market players, whether traders or exporters, who primarily require foreign currency in their transactions.

 

However, the bank still believes that the demand for foreign currencies is high and inconsistent with the official exchange rate, which significantly lags behind the parallel market level.

 

The Egyptian economy is grappling with a decline in foreign exchange reserves, leading to the adverse impact on the revenues of the Suez Canal. This is one of the major sources of foreign currency, affected by disruptions in navigation in the Red Sea.