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Egyptian pound strengthens as dollar liquidity increases
(REUTERS): The Egyptian pound strengthened slightly on Monday and importers reported increased dollar liquidity at banks days after the International Monetary Fund (IMF) approved a $12 billion loan the government hopes will jump-start the economy.
Banks were selling the pound at around 15.7 to the dollar and buying it at around 15.2 compared with a sell price of around 16 and a buy price of around 15 on Sunday.
Egypt floated the pound on Nov. 3 in a dramatic move welcomed by businesses as the key to unlocking investment.
It devalued the currency by about a third from the former peg of 8.8 against the dollar and allowed it to drift lower.
The pound initially fell to a rate of roughly 18 to the dollar, in line with prices quoted on the country’s currency black market just days before the float.
The currency has been strengthening since last Wednesday, however, when IMF Managing Director Christine Lagarde said she would recommend the international lender approve Egypt’s lending programme.
Monday’s stronger pound rate is in line with reports that importers of strategic goods are increasingly able to source their dollar needs from banks.
One importer said he had been receiving his full currency requests on the same day, a dramatic improvement from the lengthy queues experienced before the float.
Moody’s said in a report on Monday that increasing dollars sales to banks was credit positive “because it increases the availability of U.S. dollars to them, which, in turn, will help service their customers’ need for foreign currency, allow the banks to improve their dollar liquidity and reduce their net foreign liability position.”
Central Bank Governor Tarek Amer said this week Egypt’s banks bought $1.4 billion in the first six trading days after the float.
While banks have been buying dollars to supply clients, a shortage of dollar liquidity in the banking system as a whole means interbank trading is off to a slow start.
Under the currency peg, dollar supplies were rationed by the central bank, forcing businesses to go to the black market for foreign currency. Bankers have said it will take time for those dollars to be absorbed into the banking system after the float.
Egypt’s benchmark stock index closed down 2.04 percent, its first decline since the currency float, with foreign investors the sole net buyers, according to a research note from Pharos Holding.
Yields were mixed at Egypt’s treasury bond auction, with the country’s three-year bond yields increasing but yields on longer term seven-year debt falling.
Egypt, Saudi hit by profit-taking, Gulf down with emerging markets
(REUTERS): Profit-taking hit stocks in Egypt and Saudi Arabia on Monday following strong rallies in both markets, while general weakness in emerging markets dragged down the United Arab Emirates and Qatar.
Cairo’s blue chip index, which had soared 28.1 percent since the Egyptian pound was floated on Nov. 3, fell 2.0 percent ending 12 consecutive sessions of gains. The broader EGX100 index dropped 0.8 percent.
Exchange data showed non-Arab foreign investors remained net buyers of stocks to the tune of about $6.7 million, a smaller amount than in previous days.
Many Egyptian blue chips surged after the pound’s float partly because the depreciation of currency meant companies’ dollar-denominated global depositary receipts were suddenly worth much more in local currency. But that effect now appears to have largely run its course.
The Cairo-listed shares of Commercial International Bank , for example, fell 3.9 percent to 66.60 Egyptian pounds. At $4.26, its GDRs were worth 67.10 pounds at an exchange rate of 15.75 pounds to the dollar.
Saudi Arabia’s index slipped 0.5 percent, ending seven consecutive sessions of gains in the heaviest trading volumes since April.
Petrochemical shares lost their footing as Brent futures fell below $44.50 a barrel, heading for their lowest settlement since August. Heavyweight producer Saudi Basic Industries fell 0.6 percent.
The banking sector was mixed as Saudi central bank officials told a news conference that they wanted money rates to fall further, easing a liquidity squeeze in the sector. They indicated that more fund inflows into the banking system were expected.
Currencies from the Mexican peso to the Malaysian ringgit fell on Monday as the U.S dollar soared to an 11-month peak. But in the Gulf, foreign exchange pegs mean foreign investors do not have to worry about currency depreciation against the U.S. dollar.
Nevertheless, Dubai’s main index lost 0.9 as builder Arabtec dropped 2.3 percent. The company reported a narrower quarterly loss of 225.5 million dirhams ($61.4 million) compared with a 944.8 million loss in the same period of last year.
Index compiler MSCI is due to announce the results of its semi-annual index review at the end of the day. VTB Capital said in a note that it estimated an 80 percent probability that DXB Entertainments would replace Arabtec in MSCI’s emerging market index. Shares in the amusement park builder closed down 0.7 percent.
VTB Capital also expects Dubai Financial Market, the only listed Gulf exchange, to be excluded from the index. Its shares dropped 1.8 percent.
But Air Arabia climbed 2.4 percent after it reported a 26 percent rise in third-quarter net profit to 297 million dirhams, at the upper end of analysts’ forecasts.
Similarly, Abu Dhabi’s index fell for a fourth straight session, closing 1.2 percent down. MSCI emerging market index component Etisalat lost 2.3 percent.
In Qatar, the index slipped 1.3 percent in modest volume to a fresh five-month low. Twelve of the 13 shares that are members of the MSCI emerging market index fell, with Qatar Navigation losing 3.5 percent.
IMF’s Egypt loan shows extent and risks of its Middle East role
(REUTERS): A $12 billion loan by the International Monetary Fund to Egypt highlights the extent of the multilateral lender’s re-engagement with the Middle East and the risks of a backlash against governments carrying out painful reforms return for the aid.
From the late 1980s through the Arab Spring uprisings in 2011, the IMF was vilified in the region as an agent of Western big business pressuring countries into austerity policies that impoverished their populations while benefiting foreign bankers.
After IMF-inspired spending cuts triggered riots in Algeria, Jordan and Sudan, many governments shunned cooperation with the Fund. At least one Egyptian minister privately compared it to British imperialists who seized the Suez canal.
The loan to Egypt, approved on Friday, shows how much has changed. The IMF, touting a new, softer image, is now a key part of efforts to shore up many Middle East economies; as well as Egypt, it is providing billions of dollars of support to Iraq, Jordan, Morocco and Tunisia, and advising Algeria on reforms.
For the first time, it is also giving detailed advice on a large scale to rich oil exporters in the Gulf such as the United Arab Emirates and Kuwait, on issues including the introduction of value-added tax to boost non-oil revenues.
That is good news for investors, who are reluctant to put money into the region without the IMF’s seal of approval. But it exposes the IMF and its partner governments to public anger if they fail to solve deep-rooted economic problems.
Mohsin Khan, who headed the IMF’s Middle East department from 2004 to 2008, said its re-engagement with the region was tricky because while the Fund knew how to fix state finances and external deficits, it was – like economists in general – less expert at reducing inequality and creating millions of jobs.
“Governments are undertaking difficult economic reforms. If after a few years they haven’t succeeded in improving living standards, people will point fingers,” said Khan, now senior fellow at the Rafik Hariri Center for The Middle East at the Atlantic Council in Washington.
The shift towards the IMF is partly due to huge economic pressure: the turmoil of the Arab Spring slashed investment in poorer countries while the plunge of oil prices from mid-2014 squeezed the Gulf’s energy exporters.
In the past, poorer countries preferred loans, aid and migrant workers’ remittances from the Gulf, which attached political conditions to its aid, to money from the IMF, which demanded tough economic reforms. By hurting the Gulf’s finances, cheap oil has made that model unsustainable.
But the IMF itself has also changed. It is less insistent on dogma such as freeing currency rates, and more focused on reducing poverty and inequality, said Bessma Momani, senior fellow at Canada’s Centre for International Governance Innovation, who is writing a book about the Fund.
For example, last week Cairo floated its currency and hiked fuel prices – classic IMF policies. But to limit the pain for poorer citizens, it plans – with IMF acquiescence – to boost spending on a consumer subsidy scheme and keep the price of bread flat, which will slow the drive to cut its budget deficit.
“I think we’ve learned,” Masood Ahmed, who ran the IMF’s Middle East department from 2008 until last month, said of its role in the Middle East.
In the past, the IMF sometimes focused solely on macroeconomic numbers such as deficits and growth rates; it now looks more at other issues which can affect the macro picture, such as poverty, he said.
After the Arab Spring, Ahmed mounted a public relations campaign to improve the IMF’s image in the region, launching an Arabic-language blog to explain its policies and meeting frequently with politicians and journalists.
Reham El Desoki, senior economist at regional investment bank Arqaam Capital, said that partly as a result of such efforts, the IMF’s ties with Egypt had changed since the 1990s.
“The relationship has developed. It’s more of a partnership than a carrot and stick relationship,” she said.
Khan said the IMF had changed because it was shocked by the fragility of economies during the Arab Spring, as rapid growth rates evaporated and investment dried up overnight. “The Arab Spring had a humbling effect on the staff of the Fund.”
So far, the IMF appears to have succeeded in avoiding the public outrage that marked many of its past forays into the region. Ordinary Egyptians are complaining about the fuel price hikes but few are blaming the Fund, and many say they understand the need for austerity.
Coming years may test that success, however. The three-year Egyptian loan may just be the start of a long-term financial burden; many economists think it will have to be renewed. Syria and Yemen will need aid when conflicts there eventually end.
Meanwhile, the IMF will be caught in the middle as governments in both oil importers and exporters cut back welfare benefits. Fuel prices are expected to rise further and new taxes to be imposed in many countries.
“This means the IMF can’t avoid political engagement in countries, exposing it to a backlash if economic transitions prove painful,” said Momani.
Orange Egypt completes payment for 4G mobile license
(Reuters) Orange Egypt has completed payment for its fourth-generation mobile services license and submitted the outstanding $242 million it owed the Egyptian government, a company official told Reuters on Monday.
The subsidiary of French telecoms group Orange, signed the deal last month, agreeing to pay $484 million to operate 4G services in the country of 90 million after the government agreed to offer it additional frequencies.
The mobile operator said last week that it had agreed on a 500 million euro ($553 million) loan from its parent company to cover the cost of the license.
Egypt sold four 4G licenses as part of a long-awaited plan to reform the telecoms sector and raise money for stretched government finances.
Orange was the first mobile phone operator in Egypt to sign the license deal and was followed by Vodafone and Etisalat. All three had initially turned down the licenses before reaching agreements to purchase additional spectrum.
Egypt’s bourse opens on mixed note Monday
Egypt’s stock exchange opened on a mixed note in Monday trade session, for the first time since the government has floated the Egyptian pound against the U.S. dollar scale early November, Youm7 reported.
EGX 30 index declined 1 percent, while EGX 50 rose up by 0.11 percent; and EGX 20 dropped by 0.25 percent.
Egypt to allocate $3.6 mln to state’s 2016/2017 budget: official
Egypt will allocate 60 million EGP ($3.6 million), a part from the first tranche of the International Monetary Fund (IMF)’s $12loan, to the state’s budget deficit of Fiscal Year of 2016/2017, Youm7 reported an anonymous official told Youm7 on Monday.
This year, Egypt will receive $4 billion as the first tranche of the loan to support the foreign reserve; the $4 billion will be given in two tranches: Cairo already received $2.75 billion on Friday, while the 1.25 billion will be given in the coming five months.
Egypt participates in Ifresh 2016 expo in Shanghai
Egypt has participated in the 9th iFresh China Fruit & Vegetable Expo that kicked off on Monday in Shanghai, Egypt’s state-owned news agency MENA reported.
Egypt’s participation in the two-day expo aimed to enhance the Egyptian exports to China, especially in the sectors of agriculture, Egyptian General Consul in Shanghai Khaled Youssef told MENA.
“Ifresh 2016 would be a base where plenty of imperative goods can be displayed. Many of these are typically about Food And Beverage, Fruits, Vegetables, Food Packaging, Fresh Products, Fresh Food, Food Logistics and Food Storage,” said the expo’s official website.