Egypt’s Central Bank stops using collection documents in import operations

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The Central Bank of Egypt decided to stop dealing with collection documents in the implementation of all import operations, and to limit work to documentary credits only.

The bank excluded from this the branches of foreign companies operating in Egypt, and their subsidiaries, while allowing banks to accept collection documents received for goods that had already been shipped before the decision was issued. The decision, which will take effect from March, aims to control the price of the US dollar against the Egyptian pound, by limiting import operations. Documentary letters of credit are more complicated, as the bank that issues the letter of credit to the importer will require more documents to process the transaction. Egyptian companies used to deal with collection documents, in which dealings are between the importer and exporter directly, and the bank is just an intermediary. Dealing with documentary credits alone means that the transaction will be between the importing bank and the exporting bank.

President Abdel Fattah El-Sisi had stressed that no goods should be allowed to enter the country except in accordance with European standards, justifying this by controlling the random import process, which negatively affected the trade balance.

According to official data, imports increased by 16% from January to September 2021, exceeding $61 billion, compared to $52.4 billion during the same period in 2020. The Egyptian market is facing a dollar crisis similar to the one that occurred before the floating of the pound in late 2016. The International Monetary Fund, of which Egypt is the second global borrower, has been warning that emerging economies will face periods of turmoil due to the US Central Bank raising key interest rates and the slowdown in global growth due to the Coronavirus.

The Egyptian government has supported the pound against the dollar over the past five years by maintaining high interest rates, as well as expanding into international bond markets.