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After the trade deficit grows Does the pound depreciate?

Egypt's trade deficit widened around 30 billion dollars in 9 months, which could affect the value of the Egyptian pound due to a decline in export volumes and a decline in Egyptian money transfers abroad

EFG-Hermes said that the growing deficit in Egypt's trade balance is a sign that the pound's appreciation cannot continue beyond current levels. Since the beginning of 2019, the Egyptian pound has risen 130 pips against the US dollar, reaching 16.65 pounds, compared with around 17.95 pounds, according to the Egyptian Central Bank. While the balance of trade balance increased by around 29.7 billion dollars during the first nine months of the last fiscal year 2018-2019, it increased 6%, according to balance of payments indicators.

Expectations of a dollar increase against the pound Economic research firm Fox Economics estimates that the dollar will return to the pound at the end of this year and the year 2020. Capital Economics raised its estimate for the Egyptian pound to 18 pounds by the end of 2019 and 19 pounds by the end of 2020

Expectations of a rise in the dollar against the pound

The economic outlook for the dollar is expected to rise again at the end of this year and in 2020, according to economic research firm Fox Economics.

Capital Economics raised its estimate for the Egyptian pound down to 18 pounds at the end of 2019 and 19 pounds at the end of 2020, not 19 and 20 pounds respectively.

A report by Morgan Stanley said the pound would fall 10 percent this year, while investment bank HC estimated the dollar would rise to 19.6 pounds by the end of 2019.

According to financial analyst Mohammed Al-Najjar, the current real dollar value is higher than the value of the central bank, so the fall in the price of the major currency signals the possibility of further increases in dollar prices in the coming period.

Today, dollar prices in banks range from around 16.56 pounds to buy, and around 16.66 pounds to sell, according to central bank data.

Also read: Dollar exchange rate on Sunday July 14 2019 at the bank

Reducing the volume of money sent by Egyptians abroad

The volume of remittances of Egyptians working abroad fell by 1.17 billion dollars over the period from July to March of the fiscal year 2018 to 2019, to around 18.211 billion dollars during this period, compared to around 19.387 billion dollars over the same period of the year previous fiscal 2017-2018, data issued by the Central Bank of Egypt.

This decline was the first in almost four years. Remittances of Egyptians working abroad amounted to around $ 14.37 billion during the first nine months of this fiscal year (2014-2015) and fell to $ 12.66 billion during the same period fiscal year 2015-2016.

Dr. Mohsen Khudair, a banking expert, said that the pound's appreciation over the past period was mainly due to an increase in the volume of Egyptian money remittances abroad, indicating that it was one of the most important reasons that caused the pound to rise against the dollar.

Khudair added that this transfer was one of the most important sources of foreign currency in the country, and therefore the decline could significantly affect the strength of the local currency against foreign currencies.

A report by the investment bank "Golden Man Sachs" estimates an increase in the US dollar against the Egyptian pound again by 8% every year and for 3 years.

The report identifies a number of risks facing the economy and the Egyptian pound, including security risks and the risk of slowing down Egyptian money transfers abroad, especially that 50% of them come from Gulf countries, which are vulnerable to slowdown due to low oil prices.

The number of Egyptians living abroad is estimated at 9.5 million, according to data from the Central Bureau of Mobilization and Public Statistics.

There are around 70% of them in the Gulf Arab countries by 50% in Saudi Arabia, and 20% in other Gulf countries, and around 30% are in Europe and North America.

Read more: Egypt's trade deficit widened to $ 3.8 billion

Weak exports

EFG Hermes said it was the export weakness that pushed this negative shock higher than the increase in imports, with imports growing 12 percent year-on-year, the normal level in almost three years, after the currency depreciation This was often driven by investment and intermediate goods (at least, figures up to the fourth quarter of 2018), indicate that import growth has been driven by good objectives.

According to the Egyptian Central Bank, the current account deficit widened in the first quarter of this year by 94% year-on-year and 79% quarterly to $ 3.7 billion, mainly due to 13% in the first quarter of the previous year, as well as import growth, and decreased export volume.

The Center for Public Mobilization and Statistics (CAPMAS) announced a rise in the trade deficit in April to reach $ 3.87 billion, compared with $ 3.63 billion in the same month last year, up 6.8%.

Ali Abdel Aziz, Professor of Economics, said that the rise in several prices globally had contributed to the sharp increase in Egypt's trade balance deficit, especially after the crisis in emerging markets over the past period, which caused the tendency of many countries in the world to devalue local currency values.

The value of exports fell 3.9% to reach 2.58 billion dollars in March, compared with 2.68 billion dollars in the same month the previous year 2018. The export value of several commodities, the most important being apparel, decreased 0.4%, oil crude by 7.3% by 55.4%, and potatoes by 1.1%, according to data from the Central Bureau of Mobilization and Public Statistics.

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