Egypt VS Coronavirus: The pound faces a war of attrition, not crisis

    Financing from the International Monetary Fund and a successful eurobond issue look sufficient to ward off the “Sword of Damocles” hanging over the Egyptian pound. In this second part of our series on the impact of COVID-19 on Egypt, we examine if its reserves are strong enough to prevent a currency crisis.

    This is part 2 of a series.

    “Damocles” is the label used by Nomura to identify emerging market currencies which are seen as at risk of a crisis within the next 12 months. On the index, if a country receives a score above 100, it is then labelled as vulnerable.

    Egypt was added by Nomura to the six-country danger list in April, jumping straight into first place despite having previously failed to make the list.

    The COVID-19 pandemic raised the risks for the Egyptian currency in several ways. Tourism, which was bringing in US$1b a month, has collapsed. Many foreign investors have sold their Egyptian T-bills. Revenue from the Suez Canal has slumped, with the Economist Intelligence Unit in London predicting a 22.6% decline in global trade volume in 2020.

    READ MORE Coronavirus: How is Egypt navigating the economic fallout?

    The Egyptian pound had been weakening even before Nomura’s April report. The currency has been declining since reaching a high of 15.6 to the US dollar in mid-February, and now trades at 16.18.

    • Nomura sees the pound ending 2020 at 16.55, before falling by another 4% to 17.20 by the end of 2021.
    • Nomura tracks 30 countries for its measure. A score of 100 or more puts a country on the danger list.
    • Egypt now has the highest Damocles score of 176, a jump of 91 points from July 2019.
    • Eight factors are used in Nomura’s assessment: import coverage, short-term external debt, exports, foreign reserves, broad money, short-term real interest rates, cumulative non-FDI gross inflows, fiscal and current account balances and the real effective exchange rate.

    Latest articles

    Corporal Punishment officially Banned in Zimbabwe

    President Emmerson Mnangagwa has signed into law the Education Act Amendment which has officially banned the canning of pupils by teachers.

    Zim President appoints a foreigner as an Ambassador to Israel

    President Emmerson Mnangagwa recently appointed His Excellency  Ronny Levi Musan as Honorary Consul of Zimbabwe in Israel. The Israeli...

    Zimbabwe Catholic Bishops confront Mnangagwa’s government

    President Emmerson Mnangagwa’s administration has come under fire over its perceived-harsh crackdown on demonstrators last month against alleged state corruption and economic...

    UN, USA slap notorious African army General with sanctions

    United States of America has responded to a global call by the United Nations for all UN member states to implement sanctions...

    Related articles