Effect of Egyptian Pound depreciation on Kuwaiti stakeholders and investors

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KUWAIT CITY, Nov 18: The Egyptian pound is currently experiencing a significant and prolonged decline, reaching approximately 52 pounds against the dollar on the black market, in stark contrast to the official rate of around 30.9 pounds. This substantial difference of approximately 68 percent raises concerns about the potential impact on both Kuwaitis and Egyptians, reports Al-Rai daily.

The devaluation of the Egyptian pound, exacerbated by geopolitical tensions linked to the Gaza conflict, has heightened speculation regarding the dollar’s valuation in the black market. Despite international institutions suggesting a parallel market value of the pound not exceeding 40 pounds to the dollar, ongoing economic uncertainty has led to inflated assessments.

This situation raises concerns among Kuwaiti depositors, investors in Egypt, and potential investors about the implications of this historic low. Egyptians abroad, including those in Kuwait, are naturally anxious about the impact on their financial stability.

As pressures on the Egyptian economy mount, particularly amid geopolitical risks, a key question arises about the secure path for individuals and entities holding money and assets in Egypt amid the heightened speculation affecting the pound. Distinguishing between private and government-related financial elements, and considering liquid and semi-liquid investments versus assets and those under evaluation, becomes crucial. Long-term and speculative investments each present their unique considerations.

The most affected segment appears to be those holding liquid funds in Egyptian pounds, witnessing significant losses due to the currency’s decline. With the pound’s depreciation since the beginning of 2023, losses for cash pound holders have doubled, experiencing a 63 percent increase in deposits after the exchange rate against the dollar fell to about 52, compared to approximately 32 in January.

Conversely, those holding dollar deposits benefit from the rise in the dollar exchange rate, achieving high investment recovery driven by the continuous decline of the pound. As the value of funds in local currency decreases, the value of their money in dollars increases proportionally.

For Egyptians working abroad or Kuwaitis with fixed obligations in Egypt, such as financing installments or repayments for real estate, the decline in the pound’s value is advantageous. They experience a significant reduction in the values of their liabilities, paying premiums from abroad and benefiting from the expansion of the black market.

The impact on Kuwaiti companies and banks investing in Egypt cannot be ignored. To mitigate the severe effects of the currency’s deterioration, these entities work to equalize assets with liabilities recorded in the same currency, reducing exposure to open positions in foreign currency.

The Kuwait Investment Authority, as a long-term investor, records losses due to currency exchange rate decline as unrealized, considering gains in the economic and financial budgets resulting from its long-term presence in these markets.

While discussions arise about the future of loans from the Kuwait Fund for Arab Economic Development to Egypt and Kuwait’s deposits in the Central Bank of Egypt, it is clarified that these agreements are denominated in dinars, making them immune to the decline in the borrowing country’s currency.

Despite the complexity of the financial landscape, the article concludes that transferring liquid assets from Egypt, particularly cash, is considered ineffective and costly at present. The most appropriate solution for this segment is to await new savings tools offered by major banks or consider investing in secured real estate assets in strategic locations.

The article provides historical context, tracing the rise of the dollar against the pound since 1939, and details significant changes in Egypt’s exchange market since the implementation of economic reform programs in 2016, including multiple instances of currency devaluation.

This news has been read 976 times!

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