CBE unlikely to opt for EGP devaluation in short-term

Newsletter

14 May 2023

CBE unlikely to opt for EGP devaluation in short-term. Citigroup Inc is ruling out the possibility of the Central Bank of Egypt (CBE) going for a deep devaluation in the Egyptian pound in the short-term; at least until the end of June. Another sharp devaluation of the pound before the end of fiscal year (FY) 2022/2023 could hinder the government’s target to achieve a 6.5% budget deficit of gross domestic product (GDP) as well as stabilization of the country’s debt-to-GDP ratio. The CBE would probably wait for “bumper tourism” revenues worth 14 billion USD to move through the country’s economy prior to considering another pound calibration. (Asharq Business & Citigroup)

Egypt core inflation, often seen as a superior measure of price growth because it strips out volatile items such as food and fuel, recorded 38.6% y-o-y from 39.5% in March.
Price hikes are expected to accelerate again as soon as this month due to the government’s recent decisions to hike the prices of diesel and subsidized commodities sold to ration card holders as well further currency weakness and a potential increase in household electricity prices come the new fiscal year. (CBE & Zilla Capital)
It is worth mentioning that Egypt faces large spread of dollarization.
Egypt is witnessing a large spread of dollarization in all sectors of the economy, based on the monetary indicators. The anticipated asset sales in Egypt will not provide sufficient liquidity to promote the transition to a flexible exchange rate regime. The financial group also referred to the possible need to secure additional sources of foreign exchange. The EGP has fallen to a new low against the greenback in the black market in recent days, with reports of the currency switching hands at 40.0 to the USD. (Asharq Business)
Consequently, it is expected that due to April’s cooler inflation reading, the central bank will have the chance to keep rates on hold at its next meeting on Thursday, 18 May.
The CBE has raised interest rates by 1000 bps over the past year after delivering a jumbo 200-bps rate hike in March. CBE Governor Hassan Abdalla last month expressed doubts on the effectiveness of monetary policy to curb inflation, and said that policymakers need to be “very careful” about tightening policy further. (Zilla Capital)
Cabinet ratifies tax-free gold imports for arrivals from abroad.
The Cabinet has ratified a draft law on customs duties exemption on gold imports brought by arrivals from abroad for six months. However, travelers will still have to pay value-added tax on these imports, the statement noted. The draft law shall not be applicable to natural pearls, cultured pearls, precious stones, and semi-precious stones. The Cabinet’s approval comes within the framework of the country’s efforts to stabilize gold prices in markets and control gold smuggling across customs points. (Asharq Business)
Government officials are confident we’ll see stake sales between now and the end of June.
The market wants to see movement on privatization and they want to see big-ticket asset sales, ideally to high-profile GCC investors. Our inability to transact would have consequences, as Moody’s puts Egypt’s B3 ratings on review for downgrade our credit rating for the second time this year as our external position continues to deteriorate. (Hapi Journal & Al Mal)
Moody’s puts Egypt’s B3 ratings on review for downgrade.
Moody’s Investors Services has put Egypt's B3 long-term foreign-currency and local-currency issuer ratings under review for downgrade. The credit ratings agency has also placed the country’s B3 foreign currency senior unsecured ratings and its (P)B3 foreign currency senior unsecured MTN program rating on review for downgrade. The review for downgrade indicates the sovereign growing liquidity and debt affordability risks. (Arab Finance)
It is worth noting that the review period will center on the government's ability to complete the intended 2 billion USD in asset sales required to meet the International Monetary Fund (IMF) program's financing targets for fiscal year (FY) 2022/2023
and illustrate the viability of the program's external funding strategy, which heavily relies on asset sales. It will also concentrate on the authorities' capacity to increase net international reserves in accordance with quantitative IMF program objectives over a three-month period and sustain currency confidence. It is worth noting that Egypt’s ratings were B3 prior to the rating action, with stable outlook. (Arab Finance)
Egypt revives plans to sell 10% in Telecom Egypt.
Egypt has reconsidered selling an additional 10% stake in state-run Telecom Egypt (ETEL) through a share sale this month. Egypt has set the offering size at about 3.8 billion EGP, implying an indicative price of 22.25 EGP per share. On March 6th, it was reported that the Egyptian government decided to put off the sale of a stake in Telecom Egypt until the global markets’ conditions stabilize. The government owns 80% of Telecom Egypt, while the remaining 20% of the company's shares are being traded on the Egyptian Exchange (EGX). (Al Mal)
Saudi Arabia’s ACWA Power, the UAE’s Alcazar Energy and our friends at local renewables firm Infinity are reportedly among seven companies interested in acquiring Egypt’s two largest wind farms.
The government-owned 580-MW Gabal El Zeit and 545-MW Zafarana wind farms were both included in the list of 32 companies and assets earmarked for privatization in February and have attracted significant interest among investors, according to the news outlet, which says the sales are expected to be completed before the end of 2023. (Asharq Business)