CAIRO Oct 12 Egypt's pound has tumbled more
than 10 percent to unprecedented lows in the past week after a
sudden suspension of Saudi oil aid raised fears of a deeper
political rift that could sever the government's much-needed
Black market traders said they sold dollars at 15 pounds on
Tuesday, down from 14.20-14.25 a week earlier. But several
importers told Reuters on Wednesday they paid 15.20 to 15.68 to
secure dollars amid an acute shortage and plummeting confidence.
The steep depreciation means the gap with the official rate
of 8.8 pounds per dollar has widened, increasing pressure on
Egypt to devalue its currency and end uncertainty that has
discouraged foreign investment.
Egypt has struggled to earn dollars since a 2011 revolt
drove away tourists and foreign investors. Its efforts to defend
the pound drained reserves from $36 billion before the uprising
to $19.6 billion at the end of September.
Egypt has averted crisis largely thanks to billions of
dollars in aid from Gulf Arab allies including Saudi Arabia
since mid-2013, when the army overthrew the Muslim Brotherhood,
a common enemy.
But Saudi Arabia's decision to stop supplies of refined oil
products at the beginning of October has raised market fears of
a political rift that could severely affect Egypt's economy.
Traders told Reuters last week that Egypt's state oil buyer
EGPC had been forced to rapidly increase its tenders despite the
dollar shortage and growing arrears to oil
EGPC plans to allocate more than $500 million this month to
purchase petroleum products, a government official has
"The cost for Egypt is $140 million a week in terms of fuel
it has to import...that means that foreign currency which could
be available elsewhere in the marketplace is not available,"
said Angus Blair, Chief Operating Officer at Pharos Holding.
The central bank has been prioritising essential goods such
as basic food and medicine for over a year.
Private businesses, particularly those that import luxury
items, have been forced to the black market for dollars, causing
it to diverge wildly from the official rate.
One commodities trader said he purchased $700,000 on the
black market on Wednesday at 15.68 after shopping around. He was
quoted levels as high as 15.80.
Another said he was quoted 16 pounds per dollar. A third
said he had stopped buying dollars at 14.5 pounds, concerned he
would be unable to pass on the cost to consumers.
"Basic commodities will be bought but extras and luxuries
will be difficult to source and you will reach a point where the
prices are too expensive to be bought, and traders... will stop
buying because they cannot get rid of their original stock," the
first trader said.
"Unless the central bank pumps enough dollars into the
system after a devaluation... the dollar will actually shoot
Speculation is rife that Egypt could devalue the pound any
day to close the gap with the black market.
The central bank governor has said he would consider floating
the pound if reserves exceed $25 billion. Reserves have been
steadily rising in recent months as Egypt seeks to build a cash
buffer ahead of any currency adjustment.
Egypt last month received the first $1 billion tranche of a
$3 billion World Bank loan. The United Arab Emirates also agreed
in August to make a $1 billion deposit, while the government was
in talks with Riyadh to secure $2-$3 billion.
"The crucial issue in this case is whether Egypt would still
receive the $2-3 billion in deposit from Saudi Arabia within the
next two weeks," Pharos said in a note to clients.
(Writing by Lin Noueihed; Editing by Dominic Evans)