UAE, Egypt’s apex banks reach currency swap deal

The central banks of the the United Arab Emirates (UAE) and Egypt have reportedly reached a new currency swap deal. The currency exchange deal between both nations is aimed at providing much-needed support to the struggling Egyptian economy.

The agreement allows the central banks of the two countries to exchange up to five billion Emirati dirhams and 42 billion Egyptian pounds, which is approximately equivalent to $1.36 billion USD. This exchange of currencies will provide Egypt with a source of foreign currency.

Egypt has been facing significant economic challenges, including a sharp devaluation of its currency, the Egyptian pound. Over the last 18 months, the Egyptian pound has lost more than 50 percent of its value against the US dollar. The country has also been grappling with a shortage of foreign currency, which has had adverse effects on its ability to import essential goods like grain.

Egypt’s economic woes are further compounded by high inflation rates. As of the time of the news release, the annual inflation rate in Egypt stood at 39.7 percent, significantly higher than the previous year’s rate of 15.3 percent.

Currency swap arrangements like this are typically used by countries to bolster their central and domestic banks by providing them with additional liquidity in the form of foreign currency. This can help stabilise the exchange rate and ease external pressures on the country’s economy.

The UAE, along with other Gulf states, has been a major supporter of the Egyptian government led by President Abdel Fattah el-Sisi since 2013. Estimates suggest that over $100 billion in Gulf financial support has been provided to Egypt in various forms, including central bank deposits and fuel aid.

Egypt has been in negotiations with the International Monetary Fund (IMF) for a $3 billion rescue program. The report mentions that Egypt has addressed a key concern that had stalled the review of this program. However, the IMF had also been urging Egypt to devalue its currency as part of the reforms, which could be challenging given the upcoming presidential elections and potential political consequences.

The slow progress of economic reforms in Egypt, coupled with political factors, may impact investor confidence in the country’s economy, which is valued at $470 billion. The delayed IMF review and concerns about currency devaluation may further complicate Egypt’s economic situation.

The currency exchange deal between the UAE and Egypt is a move to provide financial support to Egypt’s struggling economy, which has been facing significant challenges, including currency devaluation and high inflation. It’s part of a broader effort to stabilise Egypt’s economic situation and attract investor confidence.