Will Egyptian move to curb imports stoke inflation?
Egyptian authorities floated the customs foreign exchange rate for non-basic commodities in a move aimed at curbing imports and demand for the US dollar while hopefully boosting local production of substitutes.
In an apparent attempt to curb demand for the greenback, Egyptian authorities freed the customs foreign exchange rate for non-basic and luxury commodities on Dec. 1. Going forward, the customs foreign exchange rate for non-basic commodities will be set according to the market price. On Dec. 5, the Egyptian pound stood at 17.95 to the dollar, CBE data showed. Authorities left the customs foreign exchange rate unchanged for staples, at 16 Egyptian pounds ($0.89) against the dollar.
The foreign exchange rate is a reference point that the Egyptian Customs Authority uses to calculate duties on imported commodities. The rate had been artificially low prior to the government floating the pound in November 2016 and doubled after the currency float, according CBE data.
Finance Minister Mohamed Maait told reporters on Dec. 2 that increasing the customs foreign exchange rate will protect national industrialization and boost the domestic labor market. The idea is that it will lower the imports of goods, which will increase in price, and thereby increase demand for local substitutes.
Analysts argue, however, that the move will increase inflationary pressures in the coming months, citing higher import costs for a wide range of common items. So-called non-basic commodities include bikes, motorbikes, automobiles, electronics, electrical appliances, kitchenware, detergents, jewelry, perfumes, clothes, furniture, liquor, dried nuts, honey, fruits, cosmetics and other goods.
