Egypt’s Morsi Plea Rejections

Egyptian shares and the pound were down double-digits as parliamentary election scheduling was further complicated by a Supreme Court finding that current representation was unconstitutional, as millions of signatories demanded another presidential election on the first anniversary of Morsi’s narrow Muslim Brotherhood win. The two-year IMF negotiations for an almost $5 billion credit remain snagged, although officials contend they have prepared subsidy and tax plans to meet requirements and that Fund administrative and technical delays were to blame. The budget deficit ballooned to 10.5 percent of GDP in the current fiscal year as Treasury auctions continue to fail on lackluster appetite and 15 percent yield insistence. Gas shortages are widespread as the government has accumulated arrears on fuel imports, with FDI on hold in light of investigations and reversals of previous privatizations where the state was ordered to buy back control but lacks the money with public sector debt/GDP at 80 percent. Qatar has lifted reserves over $15 billion with a near $3 billion bond 18-month bond purchase at a 3 percent coupon. The central bank has held steady on 8 percent inflation as NDF values project the currency at 7 to the dollar at a discount to the spreading black market.  The IMF’s latest regional review put economic growth at 2 percent on the same current account gap/GDP figure as almost one-fifth of the population faces “food insecurity” according to the UN. Bank and sovereign ratings have been slashed to CCC as officials have requested payment relief on essential commodity imports. Former president Mubarak’s trial is due to resume in July with the US closely monitoring the proceedings as it released $1.5 billion in annual military aid despite the sentencing of non-government organization workers including the son of the outgoing Transportation Secretary. Another cabinet reshuffle appointed an Islamic scholar as Finance Minister who will explore potential sukuk placement in Asia and the Gulf. With the diminished police presence a crime wave has gripped Cairo and Alexandria, which are largely bypassed by mainly Russian tourists heading to southern beach resorts.

Russian shares are also in the cellar despite low single digit P/E ratios and bond auctions there have featured uncompetitive bids by banks and institutions worried about 2 percent growth and 7 percent inflation amid falling world hydrocarbon prices. Since granting direct OFZ access non-residents have been cautious in contrast to early speculation that their portion would spike to 30 percent of the total. The central bank has eased incrementally as it transitions to new leadership, while President Putin’s assertion of dominance at the helm sent an economic adviser into exile as a prominent blogger critic awaits trial. In foreign policy military and energy interests continue to back Syria’s Assad even as thousands of Russians living in Damascus and elsewhere have fled. The wealthier have preferred relocation to Dubai, which received the same influx after the Cyprus carnage.