Egyptian pound weakens in parallel market at 36 EGP/USD: Goldman Sachs

Egyptian pound weakens in parallel market at 36 EGP/USD: Goldman Sachs

The parallel market rate of the Egyptian pound is dwindling and it stands at 36 EGP/USD, despite the real effective exchange rate (REER) model of Goldman Sachs that shows the Egyptian pound as “fundamentally undervalued” on a spot basis, according to issued economic research by Goldman Sachs on December 12th.

This is driven by a lack of foreign exchange (FX) liquidity in the monetary system, emerging from clear balance of payments weakness.

“The current situation is likely to be unsustainable and could, in extremes, potentially risk a descent into a devaluation-inflation spiral if left unchecked. We do not expect this will happen, with an upcoming IMF program acting as a safeguard against such a scenario,” the research highlighted.

Regarding Egypt’s four-year Extended Fund Facility (EFF) request from the International Monetary Fund (IMF), the two parties are set to discuss the EFF on December 16th after reaching a staff-level agreement in October.

The Egyptian government seeks to adopt a “more flexible exchange rate regime” through the new IMF program, Goldman Sachs added in the research note.

Goldman Sachs expects the authorities in Egypt to take decisive actions aiming at clearing the FX market over the coming days, which indicates potential crucial downside risks to the EGP