Egypt faces currency conundrum as it chases IMF loan

Egypt faces currency conundrum as it chases IMF loan

As Egypt pushes for a new IMF loan it has a choice between letting its overvalued currency weaken gradually and the kind of sharp depreciation it enacted in a similar currency crisis six years ago, with both options carrying risks, economists say.

A severe shortage of foreign currency in Egypt over the last six months has sent banks and importers scrambling to pay for the letters of credit needed to get cargo released from customs.

Factories and retailers complain that production and sales have been hurt due to undelivered inputs, while supply shortages have contributed to annual inflation running at more than 13%.

Many economists agree the Egyptian pound will have to be devalued, but they are split on how quickly this could happen.

Exchange rate policy is a key question facing new central bank Governor Hassan Abdalla, appointed last month after the sudden resignation of his predecessor, Tarek Amer.

The central bank has been allowing the pound to weaken against the dollar by less than 0.01 pounds ($0.0005) per day on average since Abdalla was appointed on Aug. 18.

Such an approach could cushion the impact of a weakening currency on prices. A quicker liberalisation would likely release pent up demand for dollars after the