To devalue, or not to devalue, that is definitely “not” the question

Updated 5/7/2023 2:45:00 AM
To devalue, or not to devalue, that is definitely “not” the question

If Hamlet were to have ever lived in Egypt, he would have opened Act 3, Scene 1 of Shakespeare’s play “Hamlet” with a statement different from the well-known “to be, or not to be, that is the question.” Back then in the play, Hamlet was contemplating death and suicide, comparing it to the pain and unfairness of life.

Hamlet “the Egyptian”

But Hamlet does not live in Egypt. Egyptians do. Nowadays, the statement reads something like this: “To devalue (the Egyptian pound), or not to devalue, that is the question.” Egyptians have been feeling the brunt of four consecutive rounds of devaluation of their local currency over the past seven years. It all started with the first major devaluation in November 2016, but ever since until early 2022, the Egyptian pound managed to stabilize and even strengthen in 2020, the year COVID-19 hit. However, it only took less than a month for the Egyptian pound to give in to the pressure exerted by the Russia-Ukraine war. The war broke out on February 24th, 2022, then the Egyptian pound was devalued on March 21st, 2022. It suffered from another major devaluation on October 27th, 2022 before going through the latest major devaluation on January 4th, 2023. All in all, the Egyptian pound fell by some 70% since 2016, but 70% of that drop took less than a year (from March 2022 to January 2023).

When two black swans come together

Ironically, Egypt’s chronic trade deficit did not go away, let alone improve. On the contrary, foreign direct investments (FDIs) have fallen and foreign investments in Egypt’s fixed-income securities and equities have been running out of the door since early 2022. The only few positive signals have come from the relaxation of COVID-19 measures worldwide, namely from Suez Canal revenues and tourism. Indeed, Egypt has fallen victim to two global black swans that pressured its finances when it was least expected: COVID-19 and the Russia-Ukraine war. But I do not fully buy the idea that those global black swans were the culprits. More recently, the Egyptian pound has come under pressure from many international players, led by the International Monetary Fund (IMF), which is not happy with the progress made since it signed the last USD3 billion credit agreement with Egypt. Its call for a flexible FX regime continues to be at the top of its prescription. Other international players include top rating agencies downgrading Egypt’s rating and outlook, namely Moody’s, S&P Global Ratings, and Fitch. Meanwhile, other global investment banks, the likes of Goldman Sachs, HSBC, and Bank of America have all been calling for yet another round of devaluation of the Egyptian pound to weather the current storm. But I don’t think this will solve Egypt’s economic problems.

A self-fulfilling prophecy in action

Even if we assume that there is no need to devalue, the pressure from speculators and doomsayers will eventually lead to that devaluation everyone is expecting. In fact, it is turning into a self-fulfilling prophecy. Egypt is currently being cornered by almost everyone to make that abhorrent move. But it will not help unless there are sizable inflows of foreign currency into the country, and ironically foreign currency inflows will not come unless a sizable devaluation takes place. It has now become a vicious circle too.

Open-Door Policy 2.0: The local laissez-fair version

It is trust in the Egyptian pound that needs to be restored. Yes, genuine supply and demand can lead to imbalances that require currency moves, but is it alone enough? Egypt needs to undertake another open-door policy or what I would call Open-Door Policy 2.0, the Egyptian version of laissez-faire. So, for Hamlet “the Egyptian”, to devalue, or not to devalue, that is definitely “not” the question. The question is whether investors will believe and trust the seriousness of the Egyptian government to empower the private sector once again as it takes long strides toward the competitive neutrality it has been promising.

In other words, the Egyptian government needs to walk the talk, and it needs to walk the talk now.

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Amr Hussein Elalfy

Amr Hussein Elalfy is currently Head of Research at Prime Securities. He has over 25 years of experience in capital markets and mobile telecommunications. Before joining Prime Securities in 2020, he was Head of Research at SHUAA Securities Egypt, Mubasher Financial Services, and CI Capital. He is the founder of, a platform focusing on fundamental analysis.