Egypt’s Rounded Peg Polish
Egyptian shares were up another 5 percent in January after 2014’s 30 percent MSCI advance as officials prepared for a March donor conference and scheduled parliamentary elections despite court decisions condemning Muslim Brotherhood members to death and keeping journalists in jail in defiance of foreign criticism. Former President Mubarak and his sons and supporters were also cleared of corruption and murder charges, as President Al-Sisi pressed Gulf allies to maintain aid and loans under military control as gross reserves stabilized around $15 billion after a $2.5 billion Qatar repayment. The central bank in turn raised pressure on the informal market by easing the pound to 7.5/dollar from the longstanding 7.15 after 2014 15 percent appreciation in real terms against a currency basket. The devaluation should not affect 10 percent inflation with offset from lower oil import costs, and with band widening the level may approach 8 by year end. The move was designed to divert parallel exchange use as well as respond to IMF calls for more flexibility ahead of possible new program talks at the upcoming development meeting. In Morocco with a current arrangement trade and travel exchange restrictions were recently relaxed but capital account opening is not envisioned over the medium-term with the high current account gap. Tight limits remain on property purchases abroad and the future regime would likely be a heavily managed float. Iraq is also slated to borrow a combined $6 billion from the Fund and World Bank in its updated budget with a $55/barrel oil price assumption. The projected deficit is 8 percent of GDP and will rely on domestic Treasury bond issuance and commercial loans for coverage as independent Kurdistan retains more revenue. Baghdad has requested additional US military equipment and training for the battle against ISIS as Prime Minister Abadi’s fragile coalition continues to disagree over strategy and in particular Iran’s role in confronting the threat. Jordan and the UAE have been active in the air strike campaign and the former deployed combat troops to the Syrian border following execution of a captured Jordanian pilot. Emirates’ officials have not voiced concern about the outlays amid falling oil prices and Dubai real estate cooling which have dictated flat MSCI stock market performance.
Israel’s Prime Minister Netanyahu in fighting for reelection has underscored Iran’s nuclear weapons desire as international negotiations over a halt in exchange for sanctions relief are deadlocked. Shares lack direction awaiting the outcome of the race and recovery from the Gaza conflict which contracted the economy for several quarters. GDP growth is forecast at 2-3 percent this year on inflation under 1 percent following months of deflation. The benchmark interest rate is at rock-bottom 0.25 percent but housing’s affordability and availability is a core campaign issue and is due to be further stretched with a large French immigrant influx in the wake of Paris attacks along with poor employment conditions pegging a harsh future.
