Egypt import controls will not prevent devaluation

Significance

British Airways stopped selling tickets in Egyptian pounds because it could not convert earnings into dollars. At end of February, Egypt's foreign reserves stood 16.53 billion dollars -- down from 36.04 billion dollars at end-2010. The Central Bank of Egypt (CBE) and the government have introduced measures to curb imports to reduce the import bill, and have provided tariff protection to local industries, in order to address the chronic shortage of foreign exchange.

Impacts

• The government will resort to more creative measures to ease its foreign currency problems.
• This will include requiring suppliers to agree to deferred payment, and holding up shipments by applying intrusive inspection criteria.
• Recent financing agreements with the World Bank, the African Development Bank, Saudi Arabia and China have given Egypt some leeway.
• However, if it finally accepts the case for devaluation it may seek support from the International Monetary Fund (IMF).