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Egypt learns how not to float a currency from Nigeria’s mistakes

Lolade Akinmurele

March 7, 2024

Nigeria may have put the cart before the horse with its floatation of the naira, but Egypt has made no such mistake.

It was hardly a surprise when Egypt devalued its currency on Wednesday after over a year of a flawed peg to the dollar that drained liquidity in the foreign exchange market and caused the official and unofficial exchange rates to fly apart.

Devaluation bets had swirled around Egypt for months as analysts grew bolder in their predictions that the Egyptian pound would be devalued for the fourth time in two years.

They were emboldened by the worsening scarcity of dollars in the economy and the lack of investor confidence in the monetary policy regime.

UK-based HSBC bank had in December 2023 projected a devaluation of the Egyptian pound by 40 percent in the first quarter of this year.

That prediction has turned out to be the most accurate after the Central Bank of Egypt (CBE) finally bit the bullet and devalued the currency by 38 percent to 50 EGP per US dollar from 30.8 EGP. The CBE said it will allow the currency trade freely against the dollar from hereon.

While the devaluation was widely expected, it was the action that preceded it that caught many off guard and may prove the difference in whether Cairo’s latest devaluation pays off.

In an unscheduled meeting on the same day the currency was devalued, the CBE hiked interest rates by a record 600 basis points in one fell swoop, its biggest rate hike yet.

Analysts and investors say the central bank was laying the groundwork for a successful currency float by first raising interest rates by a record before devaluing the pound.

This was done in realisation of the fact that devaluing the currency may not be sufficient to lure dollars into the economy if interest rates were not raised to make local debt attractive to foreign investors.

“Egypt learnt how not to float a currency from Nigeria,” a foreign investor who did not want to be named told BusinessDay.

“By first raising market rates before devaluing the pound, Egypt didn’t put the cart before the horse like Nigeria did,” the investor said.

Nigeria has also had to devalue the naira twice in the space of nine months but the gains have been thin.

The first devaluation was in June following the election of President Bola Tinubu who wasted no time in delivering bold reforms that had been stuck for years.

Experts have said the reforms are needed to put Africa’s most populous nation on track but were hurriedly made without considering its ripple effects on the citizens, especially the vulnerable.

The naira devaluation in June which paved the way for a 40 percent decline in the currency should have been preceded by a number of moves that the CBN is belatedly implementing.

Monetary experts have roundly commended the move but are of the view that floating the naira should never have come before the monetary tightening the CBN is now embarking on while measures should have also been put in place to boost dollar supply.

“Before floating naira, which by the way is a good move, the CBN should have started mopping the excess naira liquidity in the market,” a leading Nigerian economist who did not want to be named said.

“Secondly, there should have been plans to attract the required amount of dollars necessary to ensure the CBN can intervene in the market whenever the naira was under undue pressure,” the economist said.

Nigerians are bearing the brunt of the poorly planned reforms despite their long term gains, with inflation peaking at a 19-year high of 29.9%, businesses shutting down and unemployment rising.

The tough times won’t last, however, according to Benedict Oramah, president of the African Export-Import Bank (Afreximbank), reforms were necessary to revamp the country’s economy, stressing that things will soon return to normal.

“Nigeria’s choice to float the Naira and remove petrol subsidy are the right decisions,” said Oramah.

“Once you have been able to stabilise the exchange rate, prices will adjust, markets will adjust, and things will return to normal,” he added.

Time will tell if Egypt did the right thing but first hiking rates before the devaluation. In the meantime, Nigeria is learning the hard way to be more deliberate and coordinated with policy action

© 2023 - Businessday NG. All Rights Reserved.

The British embassy in the Yemeni capital, Sana’a, posted on X: “At least two innocent sailors have died. This was the sad but inevitable consequence of the Houthis recklessly firing missiles at international shipping. They must stop.”
So they still operate an Embassy there. Hypocrite

CharleyBright:
Truth is bitter.
It can pain so badly when someone expose the hidden truth you don't want told.
The Northern Almajiri system is a breeding ground for criminals and Terrorists. If you defend it, you are probably a product of the system and a criminal. We will flush out your criminal gangs out of Abuja.
So get the fvck off my face.

wèréy mahuakaci onyaarā

CharleyBright:
Ok.
That is it.
I said severally that these lootings will take a trajectory that we will all witness looting of Govt warehouses, Private warehouses, then public shops and stores and later privates stores and shops. Someday, they will loot our homes too.
We should all condemn these acts of criminalities.
Yes, people are hungry. But inside the hunger, there are criminals hiding under hunger to steal.
Jobless and criminal minded Hausa boys in Abuja are behind all these lootings.
They target warehouses to loot not because they want food, but to steal to go and sell. These pack of criminals go about and spearhead these looting and then other passerbys join in the Free fall of stealing. These good for nothing packs of criminals will soon start targeting big malls like ShopRite and Sahad Stores and then smaller private shops.
People should hire guards to shoot at sight any attempt to steal their goods.
Wike should get rid of jobless Hausa boys from Abuja. These boys are not adding any value to Abuja other than Criminal acts.
And the North should ban Almajiri system that is breeding dangerous children for the streets. They should stop breeding criminals for the Nation.

don't be an idoit bigot. Everything North na Hausa abi ? òdé. North that has more than 1000 languages, so anyone that speaks Lingua Franca of Hausa is Hausa

verybadmouth:
One man's food is another man's poison. Na Over 4.5 I play am

say no to gambling

Na small small e dey take start

Nigeria are good in inventing fraud

Buy Machine to reduce costs

Nigeria and Palestine in difficult situation

ChristCee:
It seems like we are back to the Covid-19 days, just that this one is worse.

at least COVID has expiration. This one no get expiration time.

israelmao:
If Tinubu is really smart as some people claim he is and he desires to serve out his complete tenure,he should fix the hunger crisis immediately it is only a wicked and foolish father that tells or appeals to hungry children to be patient.

you are very correct. A good father will do anything legally even if na to pack shit or gutter just for his children to survive.

Sirmwill:
Bro

That's not how it's supposed to be ooo

so how's it suppose to be

Honestly, If u not an Igbo person then inferiority complex dey worry your life. Is it with fake products or hard drugs or jebu products money you want the economy to recover with. Most prefer to sell dollars to Aboki to make more profits. Although, I agree with you on them to stop increasing price of goods, but trust me We all suffering the consequences.

That's how it suppose to be

Sayvick:
Was thinking Miri has a Nigerian meaning.

Sweet water turn sour. Probably owns by an Igbo man residing in Ghana

Very good development. We die here.

Expensive . Things are more cheaper in the North

Every Soul Shall Taste Death.

Life.....

Indomie generation can no longer afford indomie

Honestly, at this point only God can judge this evilness. Even Nazist at least didn't do their killings openly as the shameless devil choose people are doing with support of hypocrite America. Imagine the uproar if Russia did this to Ukrainian. May God be with the Palestinian people.

Obainoman6:
if i wan scam you you no go know.

have you scam b4 to know that ?

Gbam

If u are not happy on clamps down on crypto platforms, U are one of the enemies of this country. SPECULATORS

Dpharisee:
If Tinubu allows for license to import cement business men from the South especially Igbos would run Dangote out of the business by slashing cement prices.
He is the richest African because he enjoys monopoly and access to cheap dollar.
The advantage of flying Air Peace to London is that you can be served Ofe Nsala, Gbegiri with Amala and Tuwo Shinkafa

u don't have to tribalised everything. Igbo this, Igbo that.

Are they also indirectly trying to say government should subsidize them

wrongman665:
shatap. You never see juju.

go remove Ur fara own too, since u believe am.

You can't achieve anything while being comfortable.