In 2016, Egypt was trying to keep the exchange rate between its currency (the Egyptian pound) and the U.S. dollar constant. An article in the Wall Street Journal observed that if the Egyptian government took steps to reduce the value of the pound, it “would boost foreign investors’ confidence and increase the Egyptian market’s competitiveness. It would also help reduce the strain in the balance of payments; Egypt’s current-account deficit has widened to more than 5% of gross domestic product.”
a. Why would a reduction in value of the Egyptian pound help reduce Egypt’s current account deficit?
b. What does the article mean by “strain” on Egypt’s balance of payments? Isn’t any country’s balance of payments always equal to zero? Why would reducing Egypt’s current account deficit reduce strain on its balance of payments?