Crisis of Scarcity of Dollar Liquidity: Egypt’s Plan to Overcome the Dilemma

With the end of the current fiscal year approaching at the end of this month, a year in which Egypt received only one tranche instead of two tranches from the financing program agreed upon with the International Monetary Fund, the dollar liquidity dilemma still represents the most prominent problem facing the Egyptian economy.

Despite the delay in the disbursement of an important dollar resource represented in the second tranche of the IMF loan, which was supposed to be in last March, the Egyptian government continues to move in several simultaneous directions in order to overcome the liquidity dilemma and solve the related problems before the end of this month and the end of the fiscal year. 2022-2023.

The Egyptian government adopts a targeted plan to overcome the current challenges and strike the required balance to fulfill its internal and external obligations.

It also aims to get out of the economic crisis by the end of the current year 2023, according to what was confirmed by the Minister of Finance, Dr. Muhammad Maait, who said in media statements to him last month: “We are aware of the crises, and for this reason we are trying by all possible means to mitigate their social effects as much as possible until we get out of them.” And, God willing, we will emerge from it stronger and be able to recover and compensate citizens for the negative impact of this crisis.

• Last December, the IMF approved a 46-month program for Egypt.
• The financing value is $3 billion, in 9 tranches, with each tranche estimated at $347 million.
• Egypt obtained the first tranche in December 2022. The second tranche was scheduled to be received in March 2023 and the third in September of the same year.
• The first review, which was scheduled for March, was delayed. According to the Director of the Middle East and Central Asia Department at the International Monetary Fund, Jihad Azour, a date for the first review has not yet been agreed upon.

Egypt has reduced the exchange rate of the pound 3 times since the beginning of last year (the first in March 2022, the second in October, and the third in January 2023), causing the Egyptian currency to lose more than half of its value against the dollar. The pound is currently trading at around 30.9 pounds to the dollar in the official market.

Societe Generale expects the Egyptian currency to drop 16 percent to 37 pounds per dollar by the end of this year, close to the level used in the parallel market.

Theses programme

The Egyptian government is adopting a plan to deal with these challenges, in which the government offering program emerges (selling companies or offering shares of state-owned companies on the stock exchange or to strategic investors). Experts and analysts also suggest expanding strongly towards debt instruments as well as attracting “hot money”, in parallel with accelerating the pace of increasing the private sector’s share of government companies through offerings.

Accordingly, financial market expert, Mustafa Shafie, tells Sky News Arabia that the regularity of the segments of the International Monetary Fund program is related, in one way or another, to the extent of progress made in the proposition deals announced by the Egyptian government.

• Last February, Egypt revealed a list of 32 companies from which it will sell shares within a year, amid the possibility of increasing this number, according to statements by Finance Minister Mohamed Maait.
• The International Monetary Fund had expected Egypt to collect $2 billion from the sale of state-owned stakes during the current fiscal year, which ends at the end of June.

And the money market expert adds: “The delay in this regard, and the failure to resolve the liberalization of the exchange rate, are matters that have played a role in the current situation of dollar liquidity scarcity in the sectors of the Egyptian economy.”

After concluding two deals on Telecom Egypt and Pachin, the Central Bank of Egypt announced that Barclays Bank will act as an international financial advisor, along with the local financial advisor, CI Capital, to sell The United Bank, whose assets amount to 60 billion pounds (1.9 billion pounds). billion dollars), according to an official statement from the Central Bank.

Shafie attributed the delay in responding to the fund’s requirements to the accelerating inflation rates, as a result of reducing subsidies on basic commodities.

• Data from the Central Agency for Public Mobilization and Statistics in Egypt indicate that annual consumer price inflation in Egyptian cities in April fell to 30.6 percent year-on-year, compared to 32.7 percent in March.
• The annual inflation hike was driven by a 54.7 percent year-on-year increase in food and beverage prices in April.

In this context, Fahd Iqbal, a strategic analyst specializing in Middle East affairs at Credit Suisse, said in previous statements that the longer it took to initiate the long-awaited reform steps, “the more severe the market pricing of the risks of currency devaluation.”

A report issued by the bank last May suggested that the exchange rate would reach the level currently in circulation in the parallel market, which implicitly indicates a 30 percent reduction from the current price.

economic reform

For his part, the economist, Sherif Othman, said in statements to “Sky News Arabia Economy” that Egypt would likely obtain the second tranche of the International Monetary Fund loan, after completing the implementation of the steps required by the Fund in the context of economic reforms, explaining that the solution to the liquidity crisis lies in reducing Imports mainly, by following a targeted export policy, while achieving sufficiency in the local market.

He also points out that selling shares of government companies is a temporary solution that will not provide a long-term solution, “therefore reform policies should be implemented aimed at not repeating the current dilemmas in the near future.”

Egypt is proceeding with its plans to offer stakes in more than 32 government companies, but the significant decline in the exchange rate of the Egyptian pound led to a gap between the selling price that the government was planning, according to Credit Suisse.

The bank revised its estimates of the exchange rate of the dollar against the pound within 3 months to range between 45 and 50 pounds per dollar, and revised its expectations for the price during the 12 months to range between 33 and 34 pounds per dollar.

Tourism revenues and the Suez Canal

Economic analyst Ibrahim Al-Nimr says that the trade balance deficit is one of the most important challenges facing the Egyptian government, and it must be worked on vigorously during the coming period.

He adds: Tourism revenues and remittances from Egyptians abroad are the most important short-term solutions that can lead to alleviating the impact of the crisis, explaining that the latter was strongly affected by the presence of the black market for currency.

However, he clarifies that the decrease in remittances from Egyptians abroad was faced by an increase in the revenues of the Suez Canal, at the same time, which caused a state of balance, but the crisis remained.

Egypt seeks to maximize the revenues of the Suez Canal and the tourism sector, as well as remittances from Egyptians abroad, as it is among the most important sources of foreign currency in the country. It also seeks to raise the percentage of the private sector’s contribution to the economy to 65 percent.

Tourism in Egypt… Steady steps to maximize revenues

• Suez Canal revenues jumped by 35 percent in the first quarter of this year, to reach $2.3 billion, according to a statement from the Egyptian Presidency.
• The number of ships passing through the Suez Canal in the first quarter of this year increased by 20 percent.
• Last year, the Suez Canal achieved the highest revenues in its history at a value of $8 billion, an increase of 25 percent over 2021, according to a previous statement from the authority.

Al-Nimr believes that the absence of hot money in treasury bills is also one of the most important factors exacerbating the crisis, indicating at the same time that there is an absolute necessity to increase the values ​​of foreign investments in different currencies in the country.

He says that the government offering program will not be the only savior from the current crisis to provide for all the costs in which Egypt is facing a deficit at the present time. However, providing liquidity has become necessary to meet the accumulated demands for hard currency from importers and other companies, which may relieve pressure on the Egyptian pound and ensure a successful exchange rate adjustment.

Business Community: Egypt’s economy is able to overcome challenges

four solutions

A report published by “Bloomberg” a few days ago identified four scenarios and solutions to deal with the liquidity crisis, namely (setting an exchange rate for each deal separately within the offering program, or offering discounts on the value of local assets in the program itself, or setting a separate price for deals, and the fourth scenario or solution). linked to the possibility of pumping a Gulf deposit into the Central Bank of Egypt).

According to Central Bank of Egypt data, Gulf countries pumped deposits worth $13 billion last year, but made it clear that other aid will come through investments that bring returns.

The possibility of the Gulf pumping new deposits into the Central Bank of Egypt is still on the table, according to BNP Paribas, in order to assist Cairo in managing any future change in the value of the currency.