The Clap
The EGP is finding itself in a tough spot, but you already knew that, so let’s see what could happen next.
The Deets
The IMF, which Egypt is seeking a loan from, is asking for more flexibility in the exchange rate. But how flexible does the EGP need to be?
Although the EGP took a hit in March, major banks still find it overvalued. Goldman Sachs considers the EGP some 10% overvalued, while Citigroup finds it 5% overvalued.
IMF loan is a double-edged sword
Egypt’s got debt that it simply won’t be able to repay without external funding. However, an IMF loan is likely to require another EGP devaluation.
An EGP devaluation would add to an already out-of-control inflation rate, & this raises a high risk of social unrest.
A thin line
The EGP also risks getting devalued too much than the Egyptian economy needs.
That’s why a report by Deutsche Bank expects the EGP to continue gradually sliding, rather than a single “sharp devaluation.”
