Saudi's Al-Rajhi Bank Suspends EGP Transactions in Kingdom

Saudi Islamic Al-Rajhi Bank, a prominent financial institution in the Kingdom, has temporarily halted Egyptian pound transactions across its branches. The temporary decision is attributed to the volatility of the Egyptian pound's exchange rate in the parallel market, as well as circulating speculation about an imminent devaluation, fuelled by the International Monetary Fund’s (IMF) recent visit to Egypt to discuss a new deal.

Earlier this January, the IMF delegation, headed by Mission Chief for Egypt Ivanna Vladkova Hollar, arrived in Cairo to engage in discussions regarding the initial and subsequent reviews of Egypt's reform programme, which is backed by the fund's Extended Fund Facility (EFF).

In December 2022, the IMF granted approval for a four-year USD 3 billion EFF loan programme for Egypt. Since then Egypt has encountered obstacles in completing the first and second reviews of the programme, which is primarily attributed to the persistent challenges confronting the country's economy, exacerbated by global and regional geopolitical tensions. As a consequence, the disbursement of two additional tranches of the loan, originally scheduled for March and September 2023, has been delayed.

Under the EFF, Egypt is obligated to adopt flexible interest and exchange rate regimes, encourage private sector involvement in the economy, and decrease debt and inflation levels to pre-pandemic figures by the conclusion of the programme.

Since February 2022, Egypt has grappled with severe economic challenges stemming from the global and domestic repercussions of the conflict in Ukraine and the worldwide supply chain disruptions. The crisis prompted investors to withdraw around USD 20 billion in hot money from the Egyptian market, compelling the Central Bank of Egypt to officially devalue the pound by 50%.

In response to the financial strain, Cairo is actively seeking additional funding to address a USD 17 billion financing gap by the year 2026. The Egyptian government anticipates the gap for the fiscal year 2023/2024 to range between USD 6 billion and USD 8 billion.