Lack of major reforms could weigh on EGP in parallel market: Credit Suisse

Updated 3/1/2023 8:35:00 AM

Arab Finance: The lack of significant reforms could weigh on the Egyptian pound in the parallel market, making it vulnerable to a possible devaluation in the short-term, potentially to 35 against the US dollar, according to a recent report by Credit Suisse on Egypt’s quarterly outlook.

The report explained that the higher risks of social unrest were due to increasing inflation, accompanied with the devaluation of the pound which occurred twice this year and weakened the currency by 50%.

Credit Suisse also expects social unrest caused by persisting inflation in Egypt to be “sporadic and of limited scale”.

Moreover, the report highlighted that Egypt’s balance of payments gap is still sizable, but addressing it requires major reforms.

However, Credit Suisse has not eliminated the potential for a voluntary debt restructuring, as agreed upon by the creditors, which could provide a more seamless repayment plan without triggering a credit default or any credit default swap (CDS) instruments.

In terms of the 46-month $3 billion arrangement under the Extended Fund Facility (EFF) backed by the International Monetary Fund (IMF) for Egypt, Credit Suisse expects consequent progress, especially in the face of severe economic pressure, and the necessary political commitment to prevent a credit event.

At this point, the international company only anticipates minor reforms, acknowledging that even partial or delayed reforms should be enough to help improve the current economic situation.