Egypt’s Fading Square Peg Fit
Egyptian shares stayed at the bottom of the core universe heap as Tahrir Square again erupted in mass demonstrations and violence ahead of military-run parliamentary elections, following lapsed local bond auctions and 6 to the dollar pound breach as international reserves of over $20 billion are off 40 percent this year. Democracy activists have urged a poll boycott and insisted that prominent civilians enter the government prior to 2012’s scheduled presidential contest, while the Muslim Brotherhood expected to be a dominant force will compete in the process despite flaws. The cabinet has been reshuffled by the army council in response to criticism, and the Finance Ministry has reopened talks on an IMF loan while the central bank head’s term was extended. The reserve position covers less than 4 months of imports, and under conservative estimates the current account deficit will be at 2 percent of GDP, while the fiscal one is at 10 percent. Suez Canal receipts, which fell 20 percent in 2009, could soften further with a repeat global trade tumble, and European tourism and investment have suffered from dual tensions. Remittances from the Gulf may hold up, but pledges of large aid and T-bill allocation by sovereign wealth arms have barely materialized. Foreigners, who once accounted for one-fifth of the latter market, have cut holdings to a fraction as benchmark yields hover at 13 percent on headline inflation that has dropped to half that figure. Public debt/GDP is already at 75 percent, and while fiscal policy remains loose the monetary authority has just raised interest rates while regularly intervening to keep annual pound depreciation to 5 percent. The Fund previously proposed a $3 billion package with few strings, but with the deterioration since Mubarak’s January departure and the subsequent claims of the Euro-crisis a new offer may not meet the interim administration’s size and stringency desires.
In Tunisia the main Islamic party won handily in the initial political transition phase, and a counterpart was biggest vote-getter in Morocco’s monarchy-sanctioned exercise for a parliament with greater power. The Libya conflict will seal Tunisia’s recession as its rating is maintained on negative outlook and a large Eurobond comes due in 2013. At the opposite end of the troubled state output scale in the region Iraq on restored oil production is up 6 percent, but Baghdad has recently challenged Kurdistan over license awards to multinationals in a perennial politically-sensitive issue. From a security standpoint, the bulk of US troops are slated to leave soon but the stock exchange rally has sputtered on fears Iran incursions could join enduring inter-ethnic enmity as sand in the gears.
