Cairo: Huddled in the Radisson Blu hotel on the outskirts of Cairo last week, some of Egypt’s top wheat traders talked damage control: they had lost more than $1 billion since the country floated its currency and now they wanted to be bailed out.
Egypt took markets by surprise on November 3 when it abandoned its peg to the US dollar in a move aimed at attracting capital inflows and ending a currency black market that had all but displaced the banks.
The flotation helped the cash-strapped government clinch a $12bn IMF loan programme it hopes will revive growth hampered by political uncertainty since a 2011 uprising ended Hosni Mubarak’s 30-year rule.
But it also created huge losses for some importers of staples like wheat and medicine who opened credit lines when the pound was pegged but did not settle before the float. The pound has halved in value against the dollar since November 3, to trade at about 17.60 to the dollar.
Importers of essential goods like wheat – Egypt is the world’s biggest wheat importer – and medicine were on a priority list that gave them access to scarce dollars at the official rate before the float.
Alaa Ezz, secretary-general of the Federation of Egyptian Chambers of Commerce, estimates that these critical industries now owe $6-7bn as a result of foreign exchange losses.
“The banks in the past few months were not making foreign currency available except for strategic commodities, so this is the majority of the backlog,” he said.
Pharmaceutical companies said the losses and frozen credit lines had exacerbated a growing shortage of medicines since the sudden plunge in the pound’s value rendered price-controlled medicines unprofitable to make or import.
“This is a very big problem and is being looked at as it does not only involve food products,” said a source at the company that organised the crisis meeting of wheat traders.
Representatives of about 50 grains companies that attended the meeting said they were drafting a letter to Prime Minister Sherif Ismail, a plea to help cover losses they say are tied to dollar requests they made months before the float but that were held up by banks.