Tarek Amer, governor of the Central Bank of Egypt (CBE), said that the decision to float the Egyptian pound, which was taken on Thursday morning, has been on the table since December 2015, noting that the CBE is committed to the new exchange policy.
In a press conference on Thursday evening, Amer said the decision came as part of an integrated economic reform programme that has the support of the state’s political leadership.
During the conference, he described the move as “historical”, as this would be the first time for the Egyptian pound to be floated.
“The purpose of floating the pound, and the remainder of the reform programme, is to rectify the state’s economic, financial, and monetary situation to match the highest international standards—for the state to achieve Egyptians’ hopes and dreams and utilise the great potential of this country,” Amer said.
He stressed that if the CBE was not confident in its strength and is capable of taking advantage of the potential enjoyed by Egypt, they would not have taken responsibility for such a decision.
Amer revealed that the CBE had begun penning its visions for an integrated economic reform programme since December 2015 to put the national economy in the international race and achieve good results, in coordination with the government through the Coordinating Council.
He said that the money inside Egypt is not enough to achieve development, create jobs, and increase Egyptians’ income, hence the need to work on attracting funds and foreign investments. This follows in the footsteps of countries with similar circumstances, such as China, Indonesia, Malaysia, Brazil, and Turkey, which were able to achieve economic development by attracting foreign funds and investments.
He explained that Egypt enjoyed foreign investments prior to January 2011, but lost these funds due to the conditions following the post-revolution turmoil, which required an intervention to put things on the right track.
“The first step in correcting the situation is to acknowledge the problem,” Amer said. “The next step is to have the courage to face reality, not deny it, and to deal with it firmly and decisively in order to achieve the desired goals.”
He stressed that the most important thing that supported the CBE and the government to take the decision was the political leadership’s aim for change, reform, countering problems, and being honest with citizens about the circumstances.
“The political leadership has always been decisive in critical times that required a boost,” he said.
Amer pointed out that a strong and daring economic reform programme was designed. This programme needed an external party to reinforce it and give it credibility. “This is why we had to resort to the International Monetary Fund (IMF) to win the trust of the world and foreign investors,” he added.
He noted that when Egypt addressed the loan, it was not only seeking the loan itself, but wanted to discuss the vision for reforming the Egyptian economy.
He highlighted several calls received from global investment institutions wanting to invest in treasury bills and in the Egyptian Exchange.
Amer explained that Egypt was on a wrong path that needed to be changed. “The presence of two prices for the same currency was an impossible situation,” he added, Moreover, he said that funding the budget and balance of payments gap through borrowing was only making things worse. “Our national sense did not allow us to keep things that way,” he stressed. “A bold decision was vital to reform the monetary and exchange rate policies.”
He explained that the real problem with the exchange rate policy was in the low production rate, which was replaced by soaring import bills, making it difficult to allocate the required funds in hard cash and leading to inflationary pressures.
He added that Egypt informed the IMF of its programme and made it clear that it should either accept it in full or leave Egypt to continue by itself. “The IMF negotiated the terms until it gave us the approval,” he said.
The economic reform programme includes several main points, including reform of exchange rates, reform of the state budget, and development of investment policies, he pointed out, adding that the latter has been addressed by the Supreme Council for Investment with major changes in the methods with which Egypt deals with investors.
He noted that Egypt has also received strong support for its programme from major countries during foreign observatory visits undertaken throughout the last period.
Floating the pound enabled banks in Egypt to restore the hard cash changing hands on the unofficial market back to the official banking sector, according to Amer.
He noted that the banks’ foreign exchange resources doubled eight times during the first hours of the decision to float the pound.
“Today, it is the banks’ role to set the exchange rate,” Amer emphasised, urging bank leaders to care for the country.
He signaled his confidence in banks to fulfill this role, noting that their financial position and performance indicators have shown superiority among emerging markets. He praised the banking reform programme penned by Farouk El-Okdah in 2003 and attributed the success of the banks to that programme.
Amer said that the CBE is very optimistic about the change and the steps taken in the economic reform programme, noting that the programme aims to support domestic production and increase proceeds earned from exports.
Asked about the impact of these decisions on low-income citizens, Amer said that the economic reform programme will assist them, adding that the government will provide more resources for the development of education and health.
He explained that the CBE and the government have been keen to secure the flow of basic commodities to the markets and fulfill the needs of the poor, highlighting the CBE’s opening credits worth over $1.2bn in October alone to import basic goods enough for six months.
He added that the government pledged to continue subsidising food goods. “Directives of the political leadership and the cabinet were clear: protect low-income citizens from price hikes caused by liberating the exchange rate or surging fuel prices,” Amer emphasised.
He added that the price of currency on the unofficial market has been falling already, pointing out that price hikes have already taken place. “We have to wait and hope that prices will stabilise for the better,” he added.
Furthermore, Amer said that the flotation of the Egyptian pound is a big turn in Egypt’s economic future.
He added that the CBE is committed to rebuilding Egypt’s foreign exchange reserves, noting that in two months the CBE was able to add $4bn to the reserves, with plans to add an additional $6bn within a few months. Amer assured that Egyptian foreign exchange reserves will be brought up to $25bn by the end of the year.
He pointed out that the decision to lift restrictions on hard cash deposits at banks increased the volume of deposits by $14bn in 11 months.
In addition, Amer said that the CBE and the government work hand in hand to obtain the IMF loan, adding that an official request for the loan will be presented in days. He explained that there are no conflicts or disagreements with the IMF on the terms of the economic reform programme.
He stressed that the CBE is ready to make amendments in the monetary policy to keep prices stable and under control. Yet, he added that this must be complemented by fiscal policy measures.
Amer revealed that Egypt received pledges from several countries and funding institutions for funds amounting to $16.3bn to assist the economic reform programme in 2016/2017.
He noted that the pledges were offered from the G7 countries, a number of Arab countries, and the IMF.
Moreover, he pointed out that the CBE has concluded arrangements with major international banks for funding operations that have been in negotiations over the past few months, adding that Egypt aims to attract $3-5bn through offering foreign bonds on global markets, after the IMF approves the loan.
He said that receiving the IMF loan, along with the liberalisation of the exchange rate, adjusting fuel prices, imposing the value-added tax, and taking control over the state’s public budget will all push investors to invest in these bonds.
According to Amer, the difficult period for Egypt has passed. He said that a better future is hoped for, but requires confidence in officials and leaders. He urged the media to enlighten citizens for the sake of the country.
Amer also called for citizens to be patience, stressing that the state is not fixing a hindering economy, but one that has been aching for a long time. He noted that the foundations of reform must be fixed in the pursuit of sustainable development. “It will take a year and a half before we can see spikes in development rates,” he concluded.