Despite the delay in the disbursement of a large dollar resource represented in the second tranche of the IMF loan, which was due to take place last March, the Egyptian government continues to move in several simultaneous directions in order to overcome the dilemma of liquidity. and resolve the related issues before the end of this month and the end of the 2022-2023 fiscal year.
The Egyptian government is adopting a targeted plan to overcome the current challenges and find the necessary balance to fulfill its internal and external obligations.
It also aims to emerge from the economic crisis by the end of the current year 2023, according to what was confirmed by the Minister of Finance, Dr Muhammad Maait, who told him in statements to the media last month. last: “We are aware of the crises, and for this reason we try by all possible means to mitigate their social effects as much as possible until we get out of them. And, God willing, we will emerge stronger and be able to recover and compensate citizens for the negative impact of this crisis.
Last December, the IMF approved a 46-month program for Egypt. The value of the financing is $3 billion, in 9 tranches, with each tranche valued at $347 million. Egypt obtained the first tranche in December 2022. The second tranche was to be received in March 2023 and the third in September of the same year. The first review, which was scheduled for March, has been delayed. According to the director of the Middle East and Central Asia department of the International Monetary Fund, Jihad Azour, the date of the first review has not yet been agreed.
Egypt has cut the pound’s exchange rate 3 times since the beginning of last year (the first in March 2022, the second in October and the third in January 2023), causing the Egyptian currency to lose more than half of its value against the dollar. The pound is currently trading at around 30.9 pounds to the dollar on the official market.
Societe Generale expects the Egyptian currency to fall 16% to 37 pounds to the dollar by the end of this year, close to the level used in the parallel market.
Thesis program
The Egyptian government adopts a plan to deal with these challenges, in which emerges the government offer program (sale of companies or offer of shares of public companies on the stock exchange or to strategic investors). Experts and analysts also suggest expanding strongly into debt instruments as well as attracting “hot money”, alongside accelerating the pace of increasing private sector share in state-owned enterprises through of offers.
As a result, financial market expert Mustafa Shafie told Sky News Arabia that the regularity of segments of the International Monetary Fund program is linked, in one way or another, to the extent of progress made. in the proposed agreements announced by the Egyptian government.
Last February, Egypt unveiled a list of 32 companies whose shares it will sell within a year, with the possibility of increasing this number, according to statements by Finance Minister Mohamed Maait. The International Monetary Fund expected Egypt to collect $2 billion from the sale of state-owned stakes in the current fiscal year, which ends at the end of June.
And the money market expert adds: “The delay in this regard, and the inability to resolve the liberalization of the exchange rate, are issues that have played a role in the current situation of shortage of dollar liquidity in the sectors of the Egyptian economy”.
After reaching two deals on Telecom Egypt and Pachin, the Central Bank of Egypt has announced that Barclays Bank will act as international financial adviser, alongside local financial adviser CI Capital, to sell The United Bank, whose assets are s amount to 60 billion pounds. (1.9 billion pounds). billion), according to an official statement from the Central Bank.
Shafie attributed the delay in meeting the Fund’s demands to accelerating rates of inflation, due to cuts in commodity subsidies.
Data from the Central Agency for Public Mobilization and Statistics in Egypt indicates that annual consumer price inflation in Egyptian cities in April fell to 30.6% year-on-year, from 32.7% in April. March. The annual rise in inflation was driven by a 54.7% year-on-year rise in food and drink prices in April.
In this context, Fahd Iqbal, strategic analyst specializing in Middle East affairs at Credit Suisse, has stated in previous statements that the longer it takes to launch the long-awaited reform measures, “the greater the risk market pricing currency devaluation was severe”. .”
A report released by the bank last May suggested that the exchange rate would reach the level currently circulating in the parallel market, which implicitly indicates a reduction of 30% from the current price.
Economic reform
For his part, the economist, Sherif Othman, said in statements to “Sky News Arabia Economy” that Egypt is likely to obtain the second tranche of the loan from the International Monetary Fund, after completing the implementation of the measures required by the Fund in the context of economic reforms, explaining that the solution to the liquidity crisis lies in the reduction of imports mainly, by following a targeted export policy, while ensuring the self-sufficiency of the local market.
He also points out that the sale of shares of public companies is a temporary solution that will not provide a long-term solution, “therefore, reform policies should be implemented so as not to repeat the current dilemmas in the near future. coming”.
Egypt is pushing ahead with plans to offer stakes in more than 32 state-owned companies, but the significant drop in the Egyptian pound’s exchange rate has led to a gap in the government’s planned sale price, according to Credit Suisse.
The bank revised its estimates for the dollar-to-pound exchange rate within 3 months to range between 45 and 50 pounds per dollar, and revised its expectations for the price within the 12 months to range between 33 and 34 pounds per dollar.
Tourism revenues and the Suez Canal
Economic analyst Ibrahim Al-Nimr says the trade balance deficit is one of the most important challenges facing the Egyptian government, and must be resolved decisively in the coming period.
He adds: Income from tourism and remittances from Egyptians abroad are the most important short-term solutions that can lead to mitigating the impact of the crisis, explaining that the latter has been strongly affected by the presence of the black currency market.
However, he clarified that the decrease in remittances from Egyptians abroad was met with an increase in income from the Suez Canal, at the same time, which caused a state of equilibrium, but the crisis remained. .
Egypt seeks to maximize revenue from the Suez Canal and the tourism sector, as well as remittances from Egyptians abroad, as it is one of the country’s main sources of foreign currency. It also seeks to increase the percentage of contribution from the private sector. to the economy at 65 percent.
Revenue from the Suez Canal jumped 35% in the first quarter of this year, to $2.3 billion, according to a statement from the Egyptian presidency. The number of ships passing through the Suez Canal in the first quarter of this year increased by 20%. Last year, the Suez Canal achieved the highest revenue in its history with a value of $8 billion, an increase of 25% compared to 2021, according to a previous statement from the authority.
Al-Nimr believes that the absence of speculative money in Treasury bonds is also one of the most important factors that exacerbate the crisis, indicating at the same time that it is absolutely necessary to increase the value of foreign investments. in different currencies in the country.
He says the government’s bid program will not be the only savior of the current crisis to cover all the costs in which Egypt is currently facing a shortfall. However, providing liquidity has become necessary to meet accumulated demands for hard currency from importers and other businesses, which can relieve pressure on the Egyptian pound and ensure a successful adjustment of the exchange rate.
four solutions
A report published by “Bloomberg” a few days ago identified four scenarios and solutions to deal with the liquidity crisis, namely (fixing an exchange rate for each operation separately within the offer program, or offering discounts on the value of local assets in the program itself, or setting a separate price for transactions, and the fourth scenario or solution) related to the possibility of pumping a deposit from the Gulf to the Central Bank of Egypt ).
According to data from the Central Bank of Egypt, the Gulf countries pumped in deposits worth $13 billion last year, but they made it clear that further aid would come from profitable investments.
The possibility of the Gulf injecting new deposits into the Central Bank of Egypt is still on the table, according to BNP Paribas, to help Cairo manage any future changes in the value of the currency.
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