The Central Bank of Egypt (CBE) last week cancelled a February 2022 circular requiring the use of letters of credit (L/Cs) for imports, as demanded by the International Monetary Fund as a condition in its US$3 billion support package for the country approved last month.

The CBE had already resolved to end the L/C requirement, which has been blamed for blockages at the country's ports while Egyptian manufacturers and agribusinesses said the restrictions made it difficult for them to obtain the raw materials and spare parts they needed to maintain production (DC World News, 16 December 2022).

Direct payment allowed

"It has been decided to cancel the letter [requiring the use of L/Cs for imports] issued on 13 February 2022 and to allow acceptance of documentary collection to carry out all import operations," according to 29 December 2022 statement issued by the CBE.

Importers had complained that they incurred extra costs with the L/C requirement, and that it slowed down the importation process.

Foreign exchange shortage

Abolishing the L/C requirement may be of limited utility for Egyptian businesses that are still facing a chronic foreign exchange shortage, precipitated initially by US$20 billion of outflows in the immediate wake of Russia's invasion of Ukraine in February as foreign investors rushed to safer havens.

Egypt has since received US$13 billion in deposits from the UAE, Saudi Arabia and Qatar and another US$3.3 billion from asset sales to the UAE, but foreign currency remains in desperately short supply.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.