2023-05-23 13:17:00
04:17 PM
Tuesday, May 23, 2023
Cairo- Masrawy:
Bloomberg Agency published a report that talked regarding the dilemma facing Egypt between the need for a new devaluation of the Egyptian pound first, or securing access to the necessary financing through the sale of assets, before the first review of the International Monetary Fund.
Expressing the Egyptian government’s perplexity, the agency asked, “What comes first, another devaluation or a wave of Gulf investments? Cash-strapped Egypt is racing to solve this dilemma and secure the necessary financing before a major review of the International Monetary Fund.”
Through foreign deals, Egypt aims to raise $2 billion before the end of June, as the country scrambles to sell government assets ranging from banks to power stations and armed forces affiliates Safi and Wataniya.
Bloomberg reported that allies such as Saudi Arabia, Qatar and the United Arab Emirates, who have pledged billions of dollars to help Egypt weather its economic crisis, are the potential buyers.
But she noted that there is a problem with these investors wanting to see the Egyptian pound, which has already lost regarding half its value in the past year, weaken further before they execute deals.
While Egypt needs foreign exchange from the same deals as a reserve before it allows the currency to depreciate, which might accelerate inflation, which already exceeds 30%, according to the agency.
She stated that this impasse represents an urgent crisis for Egypt, where enacting a truly flexible currency system and reducing the country’s economic footprint are prerequisites of the $3 billion IMF programme.
Last December, the Executive Board of the International Monetary Fund agreed to cooperate with Egypt in an economic reform program over a period of 46 months, and to provide it with financing worth $ 3 billion in several tranches, and the fund was supposed to conduct the first review of the program last March.
solutions on the table
Economists see deal-by-deal exchange rates as one of the ways Egypt and its Gulf allies can handle the matter, allowing Cairo to meet IMF review demands by the end of next month and obtain the second tranche of its loan, according to Bloomberg.
The value of the pound has witnessed three declines since March 2022, but investors believe that there is more decline. While the dollar is trading at 30.9 pounds, an increase of regarding 96% compared to what it was on March 20 of last year.
Societe Generale expects the pound to depreciate by 16%, bringing the dollar to 37 pounds by the end of the year, near the same level now changing on the black market, according to the agency.
Although the three energy-rich Arab countries rushed to help Egypt with $13 billion in central bank deposits last year, they indicated that more help would come through investments that bring returns, according to the agency. This places the onus on Egypt to prepare attractive deals.
Cairo aims to sell shares of at least 32 companies and assets within the government offering program, as it sold this month a 9.5% stake worth $121 million in state-controlled Telecom Egypt to mainly local investors.
The authorities recently approved regulations aimed at cutting red tape and speeding up the issuance of permits and land allocation to clear the way for investors.
But expectations of a depreciation of the pound in the coming months give potential buyers little incentive to act now when they can wait for a more favorable exchange rate for locally priced assets, according to the agency.
One solution might be for the authorities to offer a discount on the valuation of the country’s assets to compensate for the relative strength of the pound, according to Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Setting a separate foreign exchange rate for deals is another possibility, she told Bloomberg, although “broader investment will still need further depreciation of the pound.”
More pound easing is not easy for Egypt. Last year’s decline helped food prices skyrocket, exacerbating the suffering of consumers in the country of more than 104 million people.
The authorities are also keen to gather a comfortable supply of hard currency ahead of any further devaluation so that they can meet market demand for dollars and avoid exchange rate appreciation, the agency said, citing people familiar with the matter.
The sources said that such liquidity is also necessary to remove the backlog of foreign currency orders from importers and other companies, which will relieve pressure on the pound and ensure a successful adjustment of the exchange rate.
Despite the removal in December of a requirement that importers obtain letters of credit to bring in certain goods, some companies are still struggling to secure currency from banks.
Hotels, car dealerships and real estate companies have begun to study possible changes in the value of the local currency by raising prices, according to the agency.
Even if the assets offered are sold, Mohammed Abu Basha, vice president of research at investment bank Hermes, told Bloomberg, “it may not be large enough to increase the liquidity needed to push for an orderly transfer of foreign currencies.”
BNP Paribas SA, which said this month that another devaluation “might be further afield than previously thought”, added that it was not ruling out the possibility of another Gulf deposit in the central bank “to help manage any future currency adjustment”.
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