Egypt’s Ponderous Pound Pounding
Egyptian shares retraced half their 2011 index drop as parliamentary elections entered consecutive phases with predicted Muslim Brotherhood dominance and talks resumed with the IMF on a $3 billion loan which may come with lighter conditions but no longer the no-strings package dangled in the immediate aftermath of Mubarak’s overthrow. Since then foreign reserves have more than halved to $16 billion on capital outflow, poor trade and tourism earnings, and central bank currency defense to keep the pound in the 6 to the dollar “stability” band. With only enough on hand to cover several months’ imports, non-essential goods buying will be limited. The fiscal deficit is running at double-digits as a fraction of GDP as the government turns to the World Bank, other development lenders and GCC sovereigns for support. The last group has put money into domestic Treasury bills but auctions continue to be undersubscribed as yields long ago breached 15 percent, and buyers insisted on a switch to dollar-denominated issuance. Local banks have increased their exposure 50 percent over the past year as deposits barely rose. Public sector borrowing has sent overall debt to 80 percent of GDP as officials contemplate new versions including diaspora and sukuk bonds to meet rollover requirements. Recent Fund analyses have highlighted exchange rate and institutional investor rigidities that may presage policy shifts and reprogramming on these fronts as the basic economic model is in flux with the gradual military handover. Although the army has chipped in with a $1 billion contribution from its assets to the reserve position, property and other deals completed under the previous regime have been annulled by courts as prominent business executives, including the head of lead privatization adviser EFG-Hermes, have been barred from leaving the country pending investigation.
Tunisia too is scrambling to maintain its longtime dinar peg as it faces a $650 million Eurobond redemption coming off recession and a 7 percent of GDP balance of payments gap. Unemployment is near 20 percent and 200 foreign-owned companies closed last year, according to the chamber of commerce. To mobilize funds a $500 million T-bill placement is set with Qatar as a $20 billion infrastructure and social spending plan presented at the Deauville G-8 summit still awaits pledges. Like its North African neighbor flotation of Islamic paper at home and abroad is actively under consideration. However the IMF in its latest review of pioneer Malaysia, which managed a record $2 billion external sukuk in 2011, noted that the segment was “unlikely to be spared global shocks.” International banks have not pulled back from there to the same extent as in the MENA zone hanging from slender pegs.
