Youssef Boutros-Ghali, the former Minister of Finance under Mubarak, said that floating the pound was a spot-on decision, but a slightly overdue one.
In an interview on DMC network on Tuesday, Ghali said that the decision should have been taken three years earlier to ease the burden on the poor.
He stressed that the post-flotation devaluation of the Egyptian pound was a natural effect, noting that a similar decision was taken in 2004 that hiked the exchange rate to EGP 7 to the dollar.
“The FX [foreign exchange] market is like a thermometer—breaking it does not mean you are not well,” he explained. Ghali said that the volatility in the exchange market indicates a bigger problem, pointing out that hiring over a million people during the past six years for the public sector and increasing their salaries are two main reasons behind the economic crisis.
“When government spending increases, a budget deficit widens,” he said.
He noted that the budget deficit forces central banks to print unrequited currency.
Furthermore, he said that the stability of prices is linked to the budget deficit. He added that the scarcity of commodities would further hike prices.
Ghali proposed raising interest rates as a solution to solving the economic crisis.