CAIRO Nov 30 Egypt's central bank has told
banks they may allocate dollars to a wider range of clients,
according to bankers, potentially making hard currency available
to foreign companies seeking to repatriate earnings after months
Egypt's central bank abandoned its currency peg of 8.8
pounds to the U.S. dollar on Nov. 3 in a move aimed at unlocking
dollar inflows and restoring the confidence of foreign investors
driven away by political instability after the 2011 uprising.
Dwindling foreign reserves and a gaping trade deficit had
prompted the central bank to ration dollar supplies through
regular auctions. Banks were forced to prioritise essential
goods such as medicine, wheat and raw materials.
Importers of non-essential items had to resort to the black
market for dollars, where they paid much higher rates.
The rationing along with capital controls imposed in early
2015 meant foreign companies were unable to repatriate profits
and companies struggled to open credit lines, resulting in a
backlog of dollar orders estimated by bankers at $10-15 billion.
"There are clients who are desperate to address their
temporary overdrafts and repatriate dividends and will buy
dollars at any rate," said one banker.
When it announced early this month that it was floating the
Egyptian pound, the central bank said its priority list for
imports had been abolished and banks could allocate dollars to
clients at their own discretion.
But bankers said at the time the central bank had verbally
asked them to prioritise companies seeking dollars for imports
of essential goods, and split any surplus foreign currency
between non-essential imports and interbank trade.
Seven bankers told Reuters the central bank had given them
the nod to widen dollar allocations.
Once they have fulfilled demand from importers of essential
goods, banks are now allowed to allocate half their remaining
dollars to business clients seeking to cover temporary
overdrafts, repatriate earnings or meet other needs.
"The central bank yesterday told us we could use 50 percent
to be directed to non-essentials or temporary refinance or
anything except to cover our short position," said one banker
who works in a treasury department.
There was no immediate comment from the central bank. A
central bank source referred Reuters to the Nov. 3 statement
that stipulated banks were free to allocate foreign currency.
Bankers said the move would increase demand for dollars at
the banks and likely put downward pressure on the Egyptian
pound, which has roughly halved in value since the flotation.
A sharp drop in the pound as a result of the new move
looked unlikely as bankers said backlogs would be cleared
"We have the option but we are still not able to address the
backlog. It will take some time, maybe a couple of months," said
one Cairo-based banker.
"There are still a lot of importers of essential goods who
are not willing to buy at current prices."
(Additional reporting by Nadia El Gowely, Editing by Lin