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Wednesday, 28 September 2022

An IMF agreement could be sealed before the end of the month, according to Goldman

IMF program by the end of this month? EGP to 24? A mood of “cautious optimism”? These are some of the suggestions in a new report from Goldman Sachs, which recently sent a team to Egypt to talk to figures from the private- and public-sectors — including the Finance Ministry, the Central Bank of Egypt (CBE), the Sovereign Fund of Egypt and local banks — about our current economic challenges. Here’s a snapshot of the report based on extracts that have appeared in the Arabic-language press, including Bloomberg Asharq:

On the IMF: Government officials told Goldman that they hope to finish talks with the IMF for a new program before the end of September — and that the size of the package could be between USD 3-5 bn. Still, the bank said there remains “a lot of uncertainty” about both the timing and the size of the facility and noted that a program of this size would fall significantly short of plugging the country’s financing gap, which it says is more than USD 15 bn over the next three years. Calibrate your expectations: Finance Minister Mohamed Maait said last week that an agreement could still take another month or two to finalize.

The EGP: Most of the people Goldman spoke with expect the EGP to settle at 22-24 to the USD following a devaluation and linked this to an agreement with the IMF. But there was no consensus on whether this would occur gradually or suddenly. The currency has been on a gradual decline since Hassan Abdalla was appointed as CBE governor, weakening almost 2% to hover above record lows against the greenback.

Enterprise readers see the EGP settling at 22.12 to the greenback, with 22% of respondents to our reader poll saying they’re budgeting for 2023 with the EGP in the 22-23 band and the same number of participants say they figure it the greenback will be changing hands at EGP 23-24 next year.

That’s roughly in line with what analysts are saying: BNP Paribas forecast before last week’s CBE policy meeting that the currency would fall to 22-23 by the end of the year, while forward markets have priced in similar declines.

On Abdalla: Abdalla’s appointment to head the CBE was “widely welcomed” by people who spoke to Goldman. They expect the central bank to better coordinate policy with the government under his leadership.

We think there has been a sea change in relations between previous “antagonists” in public service. The past month has seen significant (but not untoward) policy coordination and regular meetings between Abdalla and his team, on the one hand, and senior cabinet officials including Prime Minister Moustafa Madbouly and Finance Minister Mohamed Maait — ending months of steadily rising tensions during the term of Tarek Amer. Meanwhile, after a decade in which FRA and EGX have been singing from very different pieces of sheet music, we saw earlier this month FRA chief Mohamed Farid and EGX boss Rami El Dokkany not just working together, but appearing at a joint presser.

The economy: Officials consider the challenges facing the Egyptian economy to be under control and controllable, according to Goldman, which summed up the general mood among public- and private-sector figures as one of “cautious optimism.”

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