Wednesday,19 September, 2018
Current issue | Issue 1311, (8 - 21 September 2016)
Wednesday,19 September, 2018
Issue 1311, (8 - 21 September 2016)

Ahram Weekly

Dollar doldrums

Acquiring dollars in Egypt has become even more difficult recently, sometimes with serious consequences, writes Nesma Nowar

Al-Ahram Weekly

When Cairo resident Seif Khaled had an operation on his shoulder recently he was forced to bear the intense pain he felt after the operation because the painkiller he needed was not available.

The story shows in dramatic fashion how grave the foreign currency crunch in Egypt has now become, with various sectors, including the vital healthcare sector, suffering because of a shortage of dollars.

Many pharmaceutical companies have stopped importing the raw materials the industry needs to produce medicines as a result of the dollar crunch, even though medicines production in Egypt depends on imported raw materials by up to 85 per cent.

This has left the market short of some 1,200 types of medicine, threatening drug production in Egypt which is worth some LE40 billion.

Egypt has been grappling with a foreign currency shortage after the political instability of recent years strained its foreign currency earnings. The crisis became graver when tourism receipts fell sharply after the downing of a Russian airliner over Sinai last year.

Other industries besides pharmaceuticals are also struggling as a result of the dollar shortage. But it is not only industries that are suffering: many people have also started to feel the pinch on an individual level. Travelling abroad has become harder as acquiring the needed foreign currency has become a headache. 

“I can’t believe I could only get $150 from the bank for a two-week trip,” said Sara Helmi, a private-sector employee. “I said that was ok as I could always withdraw the money I needed abroad, but then they told me the bank was preventing people from making cash withdrawals abroad as well,” she told Al-Ahram Weekly.

Not all banks have blocked such cash withdrawals, but they all have tightened the limits on withdrawals and on the use of credit and debit cards abroad in order to stem the outflow of foreign currency.

Before the current dollar crisis, any traveler with a valid passport, visa and air ticket was entitled to change up to $1,000 at the official rate at any bank in Egypt. Because of the foreign currency crunch, the banks have reduced the amount to $500 per traveller per year.

Not all banks are able to provide their clients with $500, and some offer just $150 to $400 per traveller.

Mai Salah, a civil servant, said that her bank had told her it could not provide her with any foreign currency the day before she was traveling. “The bank said it provided $400 a day to customers, but I would have to be super lucky to get my share,” she said.

Salah said she had had to resort to exchange bureaus to get dollars at a higher rate.

Exchange companies in Egypt are allowed to sell dollars at LE0.10 more than the official rate, but many are going above this. The official rate of the dollar at the banks stands at LE7.78, but it can reach up to LE13 on the black market, which means that the dollar is selling on the black market at more than 40 per cent above the Central Bank of Egypt (CBE) official rate.

The CBE has tightened controls on foreign exchange bureaus, and it closed down many after inspections proved they were buying and selling currencies at unofficial rates.

The recent crackdown has brought the number of shuttered bureaus in recent months to 47 out of the 111 operating in Egypt.

Sherif Mustafa, travelling abroad for a lengthy period, said he had had great difficulty getting the amount of dollars he needed and several exchange bureaus had told him they did not have dollars to sell.

The closure of the bureaus and the difficulty of getting dollars from the banks has meant that foreign currency traders have flourished. Some are taking advantage of the situation by selling dollars at rates way higher than the official rate without being inspected or regulated.

“I believe the banks should loosen their grip a bit and provide their customers with a larger amount of foreign currency so that they are not forced to deal on the black market,” Mustafa said.

As the foreign currency shortage drags on, difficulties in obtaining dollars will likely continue amid fears of an imminent devaluation of the Egyptian pound. There was an earlier devaluation in March, when the CBE devalued the currency by 14 per cent to LE8.78 to the dollar. It has since been keeping the pound artificially strong through weekly dollar auctions.

Speculations on a further devaluation have become stronger after Egypt and the International Monetary Fund (IMF) agreed on an initial $12 billion financing facility over three years. Egypt is now expected to devalue the pound again in order to prove to the IMF that it will not use its currency reserves propping up the currency.

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