[News] Egypt-UAE historic deal: IMF insights and bank forecasts on Egyptian pound future

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Egyptians anticipate a significant influx of foreign currency in the coming days after Egypt signed its largest-ever direct foreign investment deal with the UAE’s ADQ company. Prime Minister Mostafa Madbouly revealed on Friday that Egypt will receive $35 billion in direct foreign investment over the next two months through the Ras al-Hekma project deal for a development project on Egypt’s north coast. For all the latest headlines follow our Google News channel online or via the app. The financial agreement includes two parts: an upfront payment and a portion of the project’s profits, ensuring Egypt a share of the earnings for the project’s duration. The initial $15 billion will be divided into two tranches: $10 billion as direct liquidity from abroad and the remaining $5 billion through converting existing deposits from the UAE in the Egyptian Central Bank into Egyptian pounds. These funds will be used for the project’s initial phase. Following this, after two months, an additional $20 billion will enter, comprising $14 billion in direct liquidity and the remaining $6 billion from UAE’s deposits. This brings the total direct liquidity to $24 billion, in addition to the $11 billion converted from the Central Bank’s deposits. Madbouly emphasized that the $11 billion previously held in the Central Bank was part of Egypt’s external debt. Hence, this transaction will bring in liquidity and reduce the country’s external debt. Regarding profits, Egypt will retain 35 percent of the project’s earnings. Beyond these funds, the UAE side expects to invest an additional $150 billion over the project’s lifespan for the development of the city. Madbouly concluded that the immediate $35 billion investment marks the largest influx of direct foreign investment in Egypt’s history, ensuring continued foreign investments throughout the project. Egyptian pound to strengthen post deal JP Morgan forecasts that the Egyptian pound’s exchange rate will rise, with the dollar expected to range between 45 and 50 Egyptian pounds, following the recent agreement between Egypt and the UAE regarding the development project of Ras al-Hekma city. The bank also anticipates a 2 percent increase in interest rates to 23.5 percent, which may contribute to slowing inflation in the coming period. The official market exchange rate for the dollar is about 30.9 Egyptian pounds. However, the pound has seen an 8 percent increase in the parallel market, ranging between 48 and 50 pounds per dollar, significantly improving from levels above 60 pounds before the deal. In the wake of the Egypt-UAE agreement, Goldman Sachs noted that the investment volume between the two parties far exceeds initial expectations. The deal is deemed sufficient to cover Egypt’s funding gap for the next four years. If it proceeds as planned, the timely inflow of liquidity is expected to provide the Egyptian Central Bank with adequate foreign currency reserves. Goldman Sachs also highlighted that this development would likely lead to a sharp decrease in speculative demand for foreign currencies in Egypt’s parallel market. Furthermore, Egyptian bond prices have seen an upsurge alongside a rise in the pound’s value in the parallel market. Deal unrelated to IMF Talks In a recent interview with “Al Arabiya Business,” Jihad Azour, the Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF), clarified that the UAE’s investment in Egypt is a notable event but is entirely separate from the IMF’s discussions with Cairo. The two matters are completely independent, and the IMF has yet to review the details of the UAE-Egypt deal. Prime Minister Madbouly mentioned that Egypt is close to finalizing agreements with the IMF, the World Bank, and the European Union. Azour emphasized that linking the size of the IMF’s loan to Egypt with the issue of refugees from the Gaza Strip is inaccurate. He also noted that the program was formulated around a year and two months ago, with the first and second reviews completed before the Gaza conflict. He acknowledged that Egypt, among others, has been economically impacted by ongoing events and the associated rise in risk levels. However, he stated that the loan size is connected to the financial gap and is not influenced by political factors. Azour added that Egypt’s discussions with the IMF are focused on economic reform in Egypt, enhancing the role of the private sector, activating social protection measures, and building confidence in the economy for its advancement. He also pointed out that exchange rate flexibility is crucial for shielding the Egyptian economy from external shocks.

https://english.alarabiya.net/business/economy/2024/02/26/Egypt-UAE-historic-deal-IMF-insights-and-bank-forecasts-on-Egyptian-pound-future