Government Brings In Debit Card Restrictions to Safeguard Waning Foreign Currency Reserves
By: Miles Rothoerl
Customers of several of Egypt’s largest banks continue to face spending restrictions as debit card transactions in foreign currencies remain suspended for a fourth consecutive week. While purchases made in Egyptian pounds, the local currency, remain unaffected, account holders are unable to withdraw cash at machines abroad or make in-store and online payments in foreign currencies. The move came just days after a leading rating agency downgraded the economically embattled country’s creditworthiness.
Egypt has been grappling with the impacts of a severe economic crisis, exacerbated by increasing fuel and food prices in the wake of Russia’s invasion of Ukraine, for almost two years. The crunch has seen inflation spiral and destabilised the Egyptian pound.
Picture by: ota_photos
Although the government under President Abdel Fattah el-Sisi has devalued the currency three times since the crisis began, it has been using reserves to keep exchange rates stable since March, a decision that has drawn criticism from some lenders. Speaking earlier this month, IMF director Kristalina Georgieva claimed “Egypt would bleed reserves protecting the pound and neither the country nor the overall environment is such that this is desirable”.
The measures have led to a widening gap between the official exchange rate, set at 31 pounds to the dollar, and the black-market rate of between 40 and 41 pounds per dollar. Some Egyptians had reportedly been exploiting the difference by purchasing high-value items like mobile phones or gold abroad at more favourable rates to circumvent inflation or resell them within Egypt, adding to the pressure on the country’s already stretched foreign currency reserves.
Foreign expenditures doubled to approximately five billion US dollars last fiscal year, causing an estimated daily drain of between 50 and 100 million dollars. The crisis saw reserves drop to their lowest levels since 2017 last year, putting the Egyptian economy, which is heavily reliant on foreign currency for the import of food and fuel, under severe pressure. The Egyptian Central Bank’s decision is widely regarded as an attempt to shield reserves as the government continues negotiations over further financial support from the IMF.
Egypt, which is already the organisation’s second largest borrower, is reportedly in discussions to bolster an existing rescue program agreed last year from three billion to five billion dollars. The assistance would come at a critical juncture, given rating agency Moody’s only just downgraded the country’s credit rating to the “Highest Risk” category, citing its worsening debt affordability.
The duration of the suspension, which affects customers of several banks including the three largest, the National Bank of Egypt, Banque Misr and CIB, remains uncertain.
Speaking to The National, the manager of a Cairo bank, who asked not to be named, said the suspension had been ordered directly by the Egyptian Central Bank. “We weren’t told until when we would be required to keep these controls in place”, the manager continued, “but based on private conversations I have had with government officials, it will probably ease up again once the government has secured more funding from foreign institutions by the end of the year”.
The decision has raised concerns among Egyptians on social media, with many expressing fears about their ability to pay for online purchases. Those affected do have some alternatives while the suspension remains in effect, however. Credit cards are not subject to the same restrictions, although foreign transaction fees are notably higher.
