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Friday, 4 November 2016

Tarek Amer meets the press

Tarek Amer held a press conference late yesterday to explain the float, the interest rate hike and where we go from here (watch, runtime 35:55). Highlights:

The central bank is implementing a “complete” and homegrown economic reform programme, set together by the CBE and the government acting through the Coordinating Council. According to Amer, the most important things are having the “political will” to enact reforms — and being able to communicate the strategy and challenges ahead effectively. The central bank is concerned with making sure that FX is spent on ensuring that basic commodities are available at affordable prices to those in need.

The CBE could not allow “two markets” for foreign currency to operate in parallel, Amer says, and the CBE has empowered banks to take control of the market. Yesterday, banks took in 8x more foreign currency than they did in “the previous period,” Amer said, refusing to disclose exactly how much flowed into the system. The governor reserved particular praise for former CBE chief Farouk El Okdah, who he says prepared the banking system for this step through the reforms he enacted starting in 2004. The banking system is healthy and profitable, Amer reiterated, but noted that an “open market” will also come with the CBE tightening its oversight of the system.

“We are also building Egypt’s international reserves,” Amer said, noting that the CBE is still aim to reach the reserve base he had “targeted at the start of the year.” (He stopped short of specifying the figure — it was USD 25 bn.) Egypt’s fiscal and monetary positions will continue to improve, creating surpluses that will be used to shore up the health and education systems, he added.

Expect Egypt to be able to “go to” the IMF and present its programme within a “few days,” Amer said, explaining that yesterday’s moves were part of a process designed to unlock the agreement with the IMF. There are no pending issues with the Fund now. Egypt is also set to issue eurobonds right after signing the IMF agreement, Amer announced. The exact value of the issuance will depend on the Finance Ministry’s view of its needs. Together, the IMF package and eurobond issuance are set to increase Egypt’s reserves by “more than 100% of the reserves adequacy metrics that the IMF recommends for countries that adopt flexible exchange rates.” It has also secured pledges worth USD 16.3 bn from G7 countries, China and Arab allies to plug this year’s budget deficit.

It will take a year and half for us to see clear improvements in the economic performance, Amer said. “We’re not just repairing a damaged factory … we’re reversing years of economic mismanagement… We are fixing the fundamentals to deliver sustainable development.”

So, what caused the FX problem in the first place? Blame the increase in M2: Amer says it’s a byproduct of the large volume of EGP in circulation as it drove up the demand for FX. He says it was not possible to continue recording large balance of payments deficits and finance them through foreign borrowing.

…Oh, and Tarek Amer doesn’t like Bloomberg, apparently. He refused to take a question from Bloomberg’s Ahmed Feteha, calling him “not objective” and someone who “never writes something positive on Egypt.” We suspect that Feteha won’t have to buy himself his own ethanolic beverage / coffee / drink of choice for some weeks to come as he’s celebrated by his peers in the press.

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