Egypt’s currency adjustments seen as strengthening strategy
The recent devaluation and the floating of the Egyptian pound could enable the economy to adjust more freely to external shocks and make Egyptian exporters more competitive, said Fitch in a recently published report.
According to the international ratings agency, despite these positive forecasts, the immediate consequence of these adjustments is likely to be put further pressure on Egyptian bank asset quality and core profitability as lending volumes continue to slow at a time when significant pressures already exist.
Core profitability, asset quality and capital adequacy have all weakened during the past three years due to challenging economic conditions, and there is a need for a significant increase in capital and loan loss reserves in the system, reported Fitch. The agency mentioned War in the region as likely to add to currency and economic woes, and as a consequence, credit rating trends for banks are likely to be downwards as has been the case for the past few years.
The Egyptian government decided to liberalize its exchange rate policy and allow the local pound currency to float freely, Egyptian Prime Minister Atef Ebeid announced at the beginning of 2003. On the first day of abandoning the ‘managed peg’ system, the pound plunged 15 percent, to match black market rates. — (menareport.com)
© 2003 Mena Report (www.menareport.com)