Central Bank of Egypt (CEB) has made new changes to its policy that forces importers to provide 100% cash coverage on letter of credit. Indeed, controls now adds computers, spare parts, and assembly parts to the list of excluded products which already included dairy and pharmaceutical products, and industrial fertilizers.

With Arab Springs, revenues in currencies derived from tourism and foreign direct investments decreased, thereby lowering the level of reserve currency. Moreover, as turmoil ended, Egypt’s import-dependent, or currency-dependent, economy was revitalized.

Now, Egyptian authorities must choose, between letting their currency (Egyptian pound) adjust to the market or keep it up, artificially, by implementing restrictions to foreign exchange services. Both options are challenging. Truly, while the floating option could lead to one of the most substantial inflations recorded in Middle East-Northern Africa region, the second option, namely restricting access to foreign currencies, discourages foreign investment and affects the actual capacity of local production.

Two weeks ago, General Motors Egypt said it was suspending its car-assembling activities in Egypt, as it was difficult to access currencies to import manufacturing inputs. The issue had been solved but the company’s seniors insisted on the implementation of long-term corrective actions. Presently, the main challenge that CEB faces is the rude competition on parallel currency market.

Idriss Linge