- Parliament Speaker says exchange bureaus are a ‘cancer’
- Black market traders now face up to 10 years in prison
Egypt’s parliament approved jail terms for breaking foreign-exchange regulations, part of the effort to fight the currency black market that has helped push inflation to the highest level since 2008.
Violators now face prison sentences of three to 10 years, and fines of as much as 5 million Egyptian pounds ($563,076), the state-run Middle East News Agency reported. Before the changes, punishments were limited to the suspension or revocation of currency trading licenses.
“Foreign-exchange bureaus are considered a cancer in Egypt’s body,” Parliament Speaker Ali Abdel-Aal said, according to MENA.
The central bank devalued the pound by the most in a decade in March in a bid to end black market trading and ease a currency shortage that has harmed economic growth. The move caused inflation to accelerate, the regulator said, with prices growing annually by 14 percent in both July and June, the highest level since December 2008. Foreign reserves fell to a 16-month low in July at $15.5 billion, enough to cover about 3 months of imports.
Amid the shortage, the gap between Egypt’s official and black-market exchange rates widened to a record last month. The pound was trading at 12.57 per dollar on Tuesday, according to a survey of four dealers in Cairo and Alexandria. The official rate has remained stable at 8.88 per dollar since the central bank last devalued the pound in March.
Economists expect policy makers to weaken the currency again or shift to a flexible exchange rate regime as the country attempts to secure a $12 billion loan from the International Monetary Fund.
“Imposing prison sentences to control what is essentially free market operations is too severe because there’s no way to separate speculators from investors with legitimate needs for foreign currency,” said Reham ElDesoki, Cairo-based senior economist at Arqaam Capital, a regional investment bank.
“A lot of currency trading has gone underground as a result of the recent FX bureau closures,” she said. “This will effectively drive more trading outside official channels and out on to the streets.”
The central bank has shut 47 exchange bureaus, MENA reported, including 21 in the past two weeks. Abdel-Aal called for all such offices to be closed, according to MENA.