The pound continued its slide, weakening to 6.39 to the dollar, down from 6.185 last week, while the cost of insuring the Egyptian debt against default rose to its highest level in more than four months.
The central bank, which had been using Egypt’s foreign reserves to defend the currency since the ouster of Hosni Mubarak’s regime, introduced a new system on Sunday for selling dollars to preserve the foreign currency it has left, signaling depleting reserves.
After a 3.2 percent slide in the pound's value against the dollar this week, some importers and shopkeepers do not rule out an even bigger decline that will be reflected in steep price rises, Reuters has reported.
Since the country depends heavily on food imports, basics such as sugar, tea and cooking oil are likely to be affected by the price rise. However, state subsidies on basics are expected to stabilize market prices while the costs of other imported goods are likely to shoot up.
Egypt’s Finance Minister Momtaz al-Saeed said Wednesday that he expected that the currency would stabilize soon, echoing President Mohamed Morsi, who signaled Monday that the government would allow the currency to depreciate slowly for several more days to stop draining its foreign reserves.
The reserves have fallen from $36 billion during the uprising that swept away Mubarak in early 2011 to around $15 billion in November 2012 -- barely enough to cover three months of imports into the country of 83 million people, according to Reuters.
"I expect that within a month or a month-and-a-half matters will stabilize completely," Saeed said in televised remarks posted on YouTube.
"I will not say that we will go back to six pounds, though this is a possibility. But at least this surge in the dollar will never reach seven pounds."
At its third auction under the new system Wednesday, the central bank sold $75 million, accepting 6.3510 pounds as its lowest price for one dollar, Reuters reported.
Egypt's budget deficit in the fiscal year ending June 30, 2013, could widen by 50 percent from the original 2012/13 budget forecast made in July, according to a figure released by the planning minister on Monday.
"The budget deficit is expected to rise to 200 billion Egyptian pounds ($31.5 billion) in the current fiscal year unless strict economic policies are put in place to confront it," the state news agency MENA quoted Ashraf al-Arabi as saying.
Al-Arabi said the government is currently aimed at reducing the poverty levels and redirecting subsidies on basic goods in order to reach those most in need and regulate public spending.