Baku, Azerbaijan, Oct.6
By Leman Zeynalova – Trend:
Egypt’s national currency is likely to fall by around 25 percent against the US dollar by the end of 2017, according to the analysts of the UK Capital Economics consulting company.
“Some analysts have argued that Egypt won’t devalue the pound until the country has a sustainable source of capital inflows, but we think this misses the point,” analysts said in a report, obtained by Trend Oct.6.
Capital Economics believes that the country is unlikely to experience a substantial pick-up in foreign investment until the currency has fallen.
“Once an IMF deal has been signed, the central bank is likely to move quickly and we think the pound could fall by 25 percent against the US dollar by the end of next year,” said the report.
Earlier, Egypt reached an agreement with the IMF in August 2016 on a loan of $12 billion over three years.
One of the key lending conditions is likely to be that the authorities shift to a more flexible exchange rate, which would entail a weaker pound, according to the analysts.
“We think Egypt won’t be able to enjoy strong and sustained capital inflows until after the pound has weakened,” said Capital Economics.
As long as there is the threat of devaluation, investors will be reluctant to put money into Egypt if they could suffer an exchange rate-related loss on the value of their investment and a weaker pound would make Egyptian assets cheaper and thus more attractive, according to the report.