The devaluation and float of the EGP devaluation are major steps in Egypt’s external, monetary and fiscal adjustment and are positive for the sovereign’s credit profile, Fitch Rating said in a statement. But a large currency adjustment puts the spotlight on social and political risks in an already challenging policy environment, the statement adds. Over the medium term, the measures will support external rebalancing, raise portfolio inflows and ease FX shortages. Fitch noted, however, that “such a major FX ‘regime change’ does present risks, especially when compounded with other reforms to control spending. It will push up inflation, which was already high at 14.1% yoy in September, beyond our forecasts (we had projected inflation to average 12.9% this year and 13% in 2017). This will be unpopular, and could precipitate some social unrest.”

The float is also getting praise from the EBRD: “The competitiveness of the Egyptian economy is expected to grow as a result of the float,” said Hanan Morsy, the Lead Economist of the Southern and Eastern Mediterranean at the European Bank for Reconstruction and Development. She does predict an inflation rate of 18% this year, outstripping predictions made by the World Bank and credit agencies, Al Shorouk reports.