Government closes 48 forex bureaus in black market crackdown, sources say

folarin okunola

August 10, 2016 5:00 PM

Egypt has accelerated a crackdown against black market traders it blames for growing pressure to devalue the currency.

A customer counts his Egyptian 50 pound notes at an exchange office in downtown Cairo, Egypt, April 19, 2016. REUTERS/Amr Abdallah Dalsh

Egypt's central bank has closed 48 foreign exchange bureaus since the start of the year for trading at black market rates and other violations, banking sources said on Wednesday, as the country tries to end speculation against the Egyptian pound.

Egypt has accelerated a crackdown against black market traders it blames for growing pressure to devalue the currency. The dollar is being sold on the black market for about 12.65 to 12.75 Egyptian pounds, according to traders, far more than the official rate of 8.78.

Import-dependent Egypt has struggled with a worsening shortage of foreign currency since the 2011 uprising that ended Hosni Mubarak's 30-year rule but also scared away foreign investors and tourists -- key earners of hard currency.

Egypt's parliament on Tuesday set prison sentences of three to 10 years and fines up to 5 million pounds ($563,000) for black market currency trading.

"The number of exchange companies closed since the beginning of the year are 48, of which 26 have been closed permanently and 22 have been suspended for three months to a year," the banking official, who spoke on condition of anonymity, said.

"The total number of foreign exchange bureaus licensed to operate in Egypt was 115 at the end of last year, but now there are only 67."

Egypt devalued its currency by nearly 14 percent in March in an effort to close the gap with the black market rate. The move failed to ease an acute shortage of foreign currency and the spread quickly widened again.

Net foreign reserves have more than halved since 2011, to reach $15.536 billion in July, enough for less than three months of imports.

Egypt is in negotiations with the IMF for a $12 billion three-year lending programme it hopes will plug a funding gap, restore market confidence and lure investment to ease the currency crunch.

But economists say another devaluation is all but inevitable this year and reforms should include a shift to a more flexible exchange rate. The central bank has said it will not float the pound until foreign reserves reach at least $25 billion, a figure it aims to achieve by the end of the year.

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