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Tuesday, 18 October 2016

El Garhy, El Erian talk IMF, fiscal reforms with Lamees

We haven’t exactly secured the USD 6 bn in third party-funding the IMF wants in place before approving the USD 12 bn extended fund facility. But we’re close, Finance Minister Amr El Garhy told Lamees El Hadidi’s Hona El Assema last night on an epic episode that also featured appearances by Mohamed El Erian, Deputy Central Bank Governor Gamal Negm, and Banque Misr CEO Mohamed El-Etriby. Deputy Finance Minister for International Affairs Ayman Al-Qaffas had suggested last week that Egypt has finished cobbling together the funding and said we had informed the IMF. We are almost there, though, El Garhy assured Lamees.

Egypt is definitely postponing the USD 3 bn eurobond sale to mid-November at the earliest on account of Saudi Arabia’s USD 15 bn bond issue, El Garhy said, and the delay could stretch to the first week of December. Other international developments including the US election also factored into the decision. El Garhy added that the IMF board will decide on the facility within the month and reassured Lamees that Egypt won’t walk away from the facility. The Ismail government, he added, is committed to economic reforms.

Fiscal reform over FX policy? Tightening fiscal policy and moving forward with the reforms was the mantra of Lamees’ interviews with El Garhy and with Allianz advisor and Global Finance’s Most Popular Egyptian Mohamed El-Erian: “We have to stop obsessing over the exchange rate,” said El-Erian. The exchange rate is neither the cause of nor the solution to Egypt’s economic woes. El Garhy said he believes that the budget deficit is the most pressing issue facing the country.

Both men agree with IMF boss Christine Lagarde’s “recommendation” that subsidy cuts and devaluation should happen “in full” and not piecemeal. It needs to be done sooner rather than later, and doing it in fits and spurts will just prolong the inflationary agony for the average consumer.

El Erian believes the biggest challenge to the reform process is that it will be misunderstood at the street level. He says the government has to step-up communications to the street about why the reforms are necessary and how they will play out; it must build trust with the IMF (which has traditionally has been low); and consistently monitor the situation, because mid-course corrections may be needed. El Garhy promised that more policy measures will be put in place to shield the poor from inflation.

On building-up the private sector, El Garhy pointed to the new investment law, which he said is currently being looked at by the Cabinet economic group. Cabinet as a whole will then review the law before passing it on to the House of Representatives. El Erian, meanwhile, put the onus on the government to create a better environment for the private sector and FDI, saying “that in [Egypt’s] situation, the private sector follows, but doesn’t lead.”

AND THAT WAS ONLY PART TWO of last night’s show: In part one, Lamees discussed limits on credit cards with CBE Deputy Governor Gamal Negm, who refuted stories circulating the last few days that USD 8 bn has funneled out of the country by Egyptian expats and travelers withdrawing cash abroad. He puts outflows on credit cards at c. USD 2.5 bn in the last fiscal year. Negm justified what he characterised as the CBE’s stringent limits on card use outside Egypt by pointing to patterns including personal cards being used for commercial purposes and the pooling of credit cards so that one person can withdraw large quantities of FX. He assured the audience that limits on purchases and withdrawals abroad will not apply to health and education spending: In other words, you bank should honor your monthly payment plan for your kid’s college tuition, and hospital bills shouldn’t be a problem.

Banque Misr’s CEO Mohamed El Etriby took a hardline approach, announcing that bank will only issue new credit cards for EGP purchases. Travellers must show documentation and proof in order to be able to make withdrawals and purchases in USD. Furthermore, waiting times for credit cards will be increased to six months after a customer makes their deposit at the bank.

(For context: Readers may recall that the balance of payments report for FY2015-16 showed a USD 657 mn uptick in use of credit cards by Egyptians — and indicated that for the first time, Egyptians spent more while traveling abroad than did tourists visiting Egypt.)

You can view the full episode in Arabic here (runtime: 1:52:26; El Etriby’s interview begins at 29:19). Or view the interviews one-by-one: El Garhy Part 1 (runtime: 14:24); El Garhy Part 2 (runtime: 20:51); El Erian (runtime: 25:33); Negm (runtime: 25:33).

** ECONOMIC POPULISM IS BACK: Al-Nahar talk show host and Youm7 boss Khaled Salah channeled his inner Bernie Sanders last night as he called for President Abdel Fattah to stop being so polite and tax the rich into oblivion. Salah’s central claim: that Egyptian workers pay nearly three times the total taxes as do business owners and white-collar professionals. Among Saleh’s suggestions: Jacking taxes on the rich to 50% or more, a wealth tax and encouraging / compelling more charitable giving. As you might expect given Saleh’s position as chairman of Youm7, the measure now has its own hashtag and wall-to-wall coverage in the newspaper and on Twitter. This Youm7 story is your starting point, including a nine-minute highlight reel.

While we’re on the subject of credit cards: CIB is cutting the monthly maximum you can spend or withdraw abroad as of 20 October 2016. For what we believe is the first time, the limits are expressed in EGP terms, not USD. At the top end, Platinum customers are capped at the foreign-currency equivalent of EGP 1k for withdrawals and EGP 17.5k for purchases. Platinum clients with debit cards linked to USD accounts can withdraw USD 5k and spend up to USD 30k. The full announcement is here (pdf). CIB’s limits remain the most generous we have come across among private banks in recent weeks: HSBC is limiting both Premier and Advance clients to USD 100 (yes, one hundred) per month. Banque Misr has cut Platinum limits to USD 4k for purchases from a previous USD 10k.

Finally: In response to a chat we had recently with a reader: Myth of the morning: Foreigners are now / will soon be required to settle Egyptian credit card bills in hard currency for purchases made abroad or online in FCY. We’re channeling our inner Snopes.com to debunk this one. Says one of our favourite bankers: “Not true. We’ve received nothing from the Central Bank of Egypt on this at all. The only time anyone — Egyptian or foreign resident — would be required to settled in USD is if they have a USD card. EGP accounts are settled in local currency. Sounds to me like the reader’s bank is looking for a way to source USD from the market at the official rate.” The reader now reports that the bank in question is accepting payment in EGP for all purchases he makes, up to his monthly limit.

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