Egyptian currency, economy to stabilise this year – economist

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A prominent Cairo-based economist has claimed that seeking the controversial IMF loan is the only way to save the Egyptian pound from depreciation this year. Egypt’s currency has lost most of its value since last year’s uprising in January 2011. The country’s foreign reserves have dropped by more than half during the last 11 months.

A plunge in foreign direct investment (FDI) along with capital flight and decrease in portfolio investments and tourist revenues have taken a toll on Egypt’s balance of payments (BOP).

“We have seen the worst in 2011, as almost all of the BOP deficit was due to the flight of hot money,” Hani Genena, chief economist at Pharos Holdings told Egypt’s leading Al Ahram Online. “In 2012 we should not face such problems. Egypt’s BOP deficit reached $18 billion in 2011, a drop from a surplus of $1.3 billion the year before. We expect the deficit to reach $7 billion or a maximum of $10 billion in 2012, which is controllable,” said Genena.

He hoped that most of Egypt’s foreign currency sources are likely to make significant rebounds while adding that the country would not have difficulties in recovering from the deficit. The Cairo-based economist insisted that the pound will not depreciate due to relating cash inflow and the Central Bank of Egypt’s (CBE) monetary policies.

“Judging from several meetings with foreign investors, especially from the region, I can say that [a return in] FDI is pending an agreement with the IMF and some political stability,” he said.

Genena also spoke about the International Finance Group (IFC), the World Bank unit which recently announced plans to invest around $1 billion by the end of June in Egypt, Iraq, Jordan and Libya. “Egypt’s isn’t also facing problem in issuing dollar denominated bonds but also in tourism,” he explained. In terms of central bank policy, the economist praised all CBE actions since last January and insisted that they show the institution’s willingness to stabilise Egypt’s currency.

“I know that Dr. El-Okda {Farouk El-Okda, the Central Bank of Egypt’s governor} strongly dislikes speculation and all the CBE’s policies indicate so,” said Genena. The Egyptian central bank decided raised interest rates last November in order to discourage growing tendency by investors to “dollarise” the economy and stem speculative gains made on the back of a depreciating pound.

“Now if you keep your money in dollars at a near zero interest rate, you are losing the 10-12% in interest that you get if you keep your funds in Egyptian pounds,” he noted while adding that things should get better later in the year with Egyptian pound actually rising against the US dollar.

Source: Al Ahram Online

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