Egypt’s Counterintuitive Counterrevolutionary Count
Egyptian stocks moved toward positive as S&P raised the sovereign rating to B after nonstop post-Mubarak downgrades in recognition of Gulf “sufficient foreign currency funding” for the budget and balance of payments, with Saudi Arabia adding another $5 billon to the pile in December as new constitutional articles were approved. Rerun parliamentary and presidential elections could be scheduled in early 2014 and the Salafists could eclipse the Muslim Brotherhood as the main Islamic party should it refuse to participate despite a legal ban, especially as ousted President Morsi is soon to go on trial. The GCC’s $12 billion lifeline to date has stabilized the reserve position at $18 billion and the pound just below 7 to the dollar, but domestic debt repayment continues to absorb one-third of revenue, and the government has maintained relations with the IMF should the original $5 billion program be revisited as a backstop. GDP growth at 2 percent and a fiscal deficit at 10 percent of output will be repeated next year covered by double-digit bond yields although bank portfolios are near the danger zone as a portion of assets. The benchmark rate otherwise is on hold as corporate and retail loans rise slightly, aided by a recent $3 billion infrastructure and wage stimulus package designed to alleviate 15 percent unemployment. FDI received a rare boost with the signature of offshore oil exploration contracts but worker remittances remain the crucial offset to the 2 percent of GDP current account hole. The so-called “road map” presented by the military to restore civilian rule has been grudgingly accepted in Western capitals, as the US has hedged its position by suspending defense but not economic assistance. Israel overcame initial resistance after Cairo ordered security forces into the Sinai to block smuggler and terrorist passage. The Tel Aviv stock exchange advanced 20 percent after a positive ratings outlook, appointment of a new central bank head, and lower than projected fiscal gap at 3 percent of GDP. The shekel continues firm against the dollar, and macro-prudential rules were introduced to cool the housing market. The hardline foreign minister returned to the coalition after court rejection of corruption charges, but has pledged to resume dialogue with Palestinian representatives as the US and other powers urge another peace push.
Jordan’s MSCI frontier component was off 10 percent at end-November despite a combination of strong US, Gulf and IMF support. A $1.25 billion Eurobond issue was guaranteed and the Fund agreed to relax deficit and state electricity company targets in its latest review to facilitate release of a second $1 billion tranche. Morocco was demoted to that index with a 7 percent weighting and may end flat for the year on Eurozone recovery and low valuations. Fuel subsidy reform is underway and tourist arrivals rose 10 percent through Q3 as pan-African bank BMCE followed the sovereign in dangling debt wares.
