Egypt will be prepared for stronger currency effects

Subject

Economy update.

Significance

The Egyptian pound was one of the best-performing currencies among emerging markets in 2019, and the rising trend has continued into 2020, on the back of strong inflows of tourism revenue, remittances and both direct and indirect foreign investment.

Impacts

• Currency appreciation will reduce the cost of imports as well as headline consumer inflation; this could stimulate higher consumer spending.
• External debt has risen rapidly in the past few years, but a strong pound is helping to decrease it as a proportion of GDP.
• Cuts in domestic interest rates will reduce yields for foreign portfolio investors, but Egypt still offers relatively attractive returns.