• No flotation before building reserves, brace for a relief in 2017 CBE Governor Tarek Amer gave an extensive interview on TV yesterday where he outlined his views on monetary policy and the EGP. Amer clearly stated the CBE is not on its way to float the EGP, arguing this would only be considered when the CBE has enough reserves (citing USD25 billion as an example). Amer disapproved of arguments calling for outright devaluation, hinting it would be more costly to devalue – as economic pain would be greater than potential attracted investments. Asked when he expects companies to be able to access foreign exchange, Amer replied “next year” showing no hesitance and asking the business community for patience as Egypt manoeuvres through tough economic conditions.
• Imports and loose fiscal policy blamed for widening trade deficit Governor Amer argued that reducing Egypt’s import bill and introducing fiscal restraint measures would greatly resolve the country’s foreign exchange shortages, refusing to blame the sharp decline in tourism for the FX crunch. Amer implied the latest measures were efforts to discipline and regulate the country’s imports which went uncontrolled, saying the real import bill last year was USD90 billion versus the actual USD76 billion as c20,000 traders falsified their bills.
• Talk supports our view of ‘liquidity shield’; continue to see downside risk to economic growth The Governor’s statements support our notion of the ‘liquidity shield’ as well as expectations that policymakers currently see little benefit to float the EGP in the short-term, hence we are not of the view of a near-term devaluation of the EGP. Obtaining an IMF loan remains a key to build such shield, in our view, as it would also open the door for additional sources of funding. Having said that, we note though that the floatation process has already started with the CBE relaxing foreign currency deposit limits; it looks as though it is going to be an extended process as we expected. We also continue to see downside risks to growth in the short-term as such curtailing of demand is not met with an equivalent stimulus as the foreign exchange shortages continue to weigh negatively on sentiment and hence investment decision making in the private sector.

Mohamed Abu Basha