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Sunday, 10 July 2016

Three questions we’re asking this morning

Answers to these three questions will set the agenda for business this week:

Are we about to face another round of devaluation? Central Bank of Egypt chief Tarek Amer hinted last week that further devaluation could be in the works when he said it had been a “big mistake” to defend the EGP over the past five years: “I will never be happy when the FX rate is stable but factories are not working … people need to know we are going through a challenging period.” Speculation got a shot in the arm last nightafter President Abdel Fattah El Sisi sat down for a talk with Prime Minister Sherif Ismail, Finance Minister Amr El-Garhy and Amer, according to an overnight statement from Ittihadiya. All eyes now turn to Tuesday’s scheduled FX auction.

(The parallel market is looking forward to the move, it seems: The USD strengthened against the EGP on the parallel market on the first working day after Eid El-Fitr, Al Mal reported, giving the rate as 11.10 EGP to the USD on Saturday, compared to 11.00 EGP before Eid. Reuters had cited traders quoting 11.05-11.08 before Eid. This comes as the CBE’s net foreign reserves rose to USD 17.55 bn at the end of June from USD 17.52 bn at May’s end, according to Reuters. At the start of July, Egypt made payments of USD 1.72 bn, split between USD 1 bn to return Qatar’s deposit at the CBE and USD 720 mn to repay Paris Club debts.)

Do we have a state budget yet? The state budget was approved by the House of Representatives at the end of last month — and House Speaker Ali Abdel Aal created confusion by saying the budget should have first been sent to the Council of State (Maglis El Dowla) for review. Technically, this means we don’t have a budget yet and are operating under last year’s until the new one is passed, no? The key: Amid poor reporting by the local press and in the absence of an official statement, did Abdel Aal order the budget sent to Maglis El Dowla? Or does he just think it should have been sent there? This much is clear: The budget doesn’t appear to have been published in the Official Gazette as yet, and readers of a certain age will recall it was distressingly common pre-2011 for laws to be struck down by the courts on procedural grounds for having failed to obtain Maglis El Dowla approval when necessary.

Did the PMI fall again in June? And is the effect more than seasonal?The Emirates NBD / Markit PMIs for Egypt, Saudi Arabia and the United Arab Emirates are due out today at about 6:15am CLT (that’s substantially earlier than usual — we’ve no clue why). You can check out the releases here when they’re out.

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