Egypt offers rate relief to firms hit by pound float

29/12/2016 08:18 AST

Egyptian companies unable to repay US-dollar denominated debts after the devaluation of the pound will be allowed to negotiate fixed exchange rates with banks. The move aims to alleviate financial pressure on manufacturers following the central bank’s decision to remove all restrictions on the local currency on November 3. The pound has since lost more than half its value.

Companies need to negotiate individually with lenders to agree on a fixed exchange rate that will be used to finance their debts, Federation of Egyptian Industries Deputy chairman Tarek Tawfik said in a phone interview, citing an agreement with the central bank. There has been no comment from the central bank on the issue.

Nine of Egypt’s biggest business associations ran a full-page ad in newspapers on Tuesday, appealing to President Abdel Fattah al-Sisi to find a solution to the “crisis” faced by local companies. Firms are facing bankruptcy because banks are asking them to pay for letters of credit initiated before the pound was devalued at post-float exchange rates, the ad said. The agreement “is very positive and will help end most of the FX-related dues problems,” Tawfik said. Officials say floating the pound was a necessary measure to restore investor confidence and end a dollar shortage that has hammered businesses.

It enabled the government to secure a $12bn loan from the International Monetary Fund as it tries to attract foreign capital and revive economic growth.

But industries, including the pharmaceuticals sector, have complained over the resulting increase in the cost of imported raw materials. The pound is currently trading at around 19 per dollar.

The central bank will also allow companies hurt by the loss in value of the pound to make repayments over one to three years, according to the statement from the FEI. Local lenders were instructed not to take legal measures against companies unable to repay debts, it said.

Gulf Times