CAIRO (Reuters) - Acting Central Bank of Egypt Governor Hassan Abdullah faces a daunting task as he tries to repair an economy battered by an overvalued currency, rising inflation and draining most of the banking system's foreign exchange holdings. Last week, President Abdel Fattah al-Sisi chose Abdullah for the post after the sudden resignation of former governor Tarek Amer, just over a year before the end of his four-year term. Abdullah served as the managing director of the Arab African International Bank in Cairo from 2002 to 2018. He was a member of the Central Bank’s board of directors and chaired the economic committee of the ruling National Democratic Party during the era of the late President Mohamed Hosni Mubarak. In 2004, Abdullah helped pave the way for the interbank currency market as part of reforms that also included lowering income tax to 20 percent and cutting most customs duties to 20 percent. *currency decline Abdullah will now have to decide on the issue of devaluation, and the timetable for implementing it if there is indeed a devaluation. Businessmen said Amer's efforts to bolster the Egyptian pound included capital controls that have undermined imports seen as nonessential, restricted production inputs for factories and impeded companies and travelers' remittances of foreign currency abroad. In the past few months, bankers say, foreign currencies have largely disappeared from the interbank market. Hisham Ezz Al-Arab, the former chairman of the Commercial International Bank, the largest private bank in Egypt, whose appointment was announced on Wednesday as an advisor to the acting governor, said he expected Abdullah's steps towards controlling the currency value to be much faster, adding that he did not expect a sudden devaluation like the one Aamir adopted it, but at a faster pace. The tools available to the central bank will be limited. The war in Ukraine, which caused global shocks, weakened portfolio investments and tourism and raised the costs of importing goods. Central Bank data indicate that the year ending on June 30 witnessed a foreign exchange exit of more than 35 billion dollars from the central bank and the banking system, with net foreign assets turning to negative 370.1 billion Egyptian pounds from 251.7 billion Egyptian pounds. The current account deficit drained $5.79 billion from the economy in only the first quarter of 2022. Many of Egypt's 103 million people have been hit by austerity measures since a $12 billion deal with the International Monetary Fund in 2016. Annual inflation is now 13.6 percent, its fastest pace since March 2019. *Help from the International Monetary Fund? Egypt began talks in March for a new IMF loan, but the fund said last month that Cairo still had to make "decisive progress" on financial and structural reforms. Gulf states have provided tens of billions of dollars in investment and deposits to support Egypt since Russia's invasion of Ukraine in February fueled an inflationary wave in the global economy. Those countries are expected to do more to help Cairo reach an agreement with the International Monetary Fund. This month, the Egyptian government turned off the lights in Cairo's Tahrir Square and ordered stores and malls to turn off air conditioners to save gas that could be exported in foreign currency. The official pound fell to about 19.15 to the dollar from 15.80 in March. Despite the crackdown on the black market, bankers say that the US currency is being sold at about 20 pounds, and it ranges between 21 and 25 pounds among larger customers. James Swanston of Capital Economics said the pound should be devalued by another 24 percent. "We believe that the currency needs to fall further, and that it should fall to the level of 25 against the dollar by the end of 2024. The ideal scenario would be a gradual, controlled devaluation of the pound to avoid sharp devaluations that could be more harmful," he said. It seems that devaluation of the currency and sale of government assets are prerequisites for reaching an agreement with the International Monetary Fund. Egypt this year pledged to sell $10 billion in state-owned assets annually over the next four years.

(dollar = 19.14 pounds)