Egypt Conducts Unprecedented Reforms in Attempt to Activate Investment

Nuts are sold at a market, ahead of the Muslim fasting month of Ramadan in Cairo, Egypt, May 6, 2018. (Reuters)
Nuts are sold at a market, ahead of the Muslim fasting month of Ramadan in Cairo, Egypt, May 6, 2018. (Reuters)
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Egypt Conducts Unprecedented Reforms in Attempt to Activate Investment

Nuts are sold at a market, ahead of the Muslim fasting month of Ramadan in Cairo, Egypt, May 6, 2018. (Reuters)
Nuts are sold at a market, ahead of the Muslim fasting month of Ramadan in Cairo, Egypt, May 6, 2018. (Reuters)

The International Monetary Fund on Friday approved the fourth installment of a $12 billion, three-year loan for Egypt, bringing the total released to date to just over $8 billion.

The IMF board approved the latest $2 billion disbursement under the aid deal signed in November 2016 to support Cairo's economic reform program, which the Washington-based lender has repeatedly praised.

Since then, Egypt has imposed harsh austerity measures and started to phase out subsidies on many goods and services, including this month's move hiking fuel prices as much as 50 percent, and electricity rates by about 25 percent.

Consumer prices have soared as the authorities floated Egypt's currency and adopted a value-added tax. Meanwhile, a fiscal crisis caused the deficit to balloon to 12.5 percent of GDP in the 2015-2016 tax year.

The government said the subsidy cuts are needed, and acknowledged they would lead to sharp increase in taxi fares.

The IMF said Egypt is beginning to reap the benefits of the reforms, and estimates the economy will grow 5.2 percent this year. Inflation is expected to fall to 20 percent by the end of 2018 from 33 percent last year.

However, IMF staff in May stressed that the government still needs to strengthen its social safety net

Since the 2011 revolt toppled former president Hosni Mubarak, the economy of the Arab world's most populous country has received multiple shocks caused by political instability and security issues.

The government in Egypt seeks to implement a bunch of reforms for the sake of reinforcing its capabilities to attract direct foreign investment. After more than one year and a half on agreeing over a loan with the IMF, it managed to bring back exchange markets to stability but its debts aggravated.

Egypt borrowed from the IMF in November 2016, after the difference in foreign currencies increased.

The CBE has raised interest rates by a total of 7 percent since the flotation in late 2016 in a bid to curb inflation. The reforms program, adopted by the government in the meantime, included issuance of a new law of investment motifs – the program is backed by the IMF and other international donors.

Egypt sought years ago to lessen procedures for establishing firms, and it developed this service through the center of investors services in which it has become possible to fulfill the establishment in a couple of hours.

Yasser Abbas, head of investors services sectors at General Authority For Investment & Free Zones, told Asharq Al-Awsat that during this period between January and February, for the first time there is a center for investors services representatives from 60 parties concerned with issuing licenses. These parties represent the majority of entities which the investors needs to deal with.

Abbas points out that the investment law was enacted following consultation with relevant bodies and no party objected over the proposed duration. The law also suggests issuing a unified guide of steps that the investor needs.

According to the latest reports of the International Finance Corporation, the investor needs around 172 days to finish the construction licenses in Egypt in return for an average of 132.1 to finish the same licenses in MENA. Egypt comes in rank 66 among 190 states.

Ministry of Investment and International Cooperation looks forward to not repeat the problems of granting licenses for newly established projects. A source from the ministry told Asharq Al-Awsat that the authority allows a number of mechanisms to coordinate between the investor and the party issuing the licenses.



Firm Dollar Keeps Pound, Euro and Yen Under Pressure

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo
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Firm Dollar Keeps Pound, Euro and Yen Under Pressure

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo

The US dollar charged ahead on Thursday, underpinned by rising Treasury yields, putting the yen, sterling and euro under pressure near multi-month lows amid the shifting threat of tariffs.

The focus for markets in 2025 has been on US President-elect Donald Trump's agenda as he steps back into the White House on Jan. 20, with analysts expecting his policies to both bolster growth and add to price pressures, according to Reuters.

CNN on Wednesday reported that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries. On Monday, the Washington Post said Trump was looking at more nuanced tariffs, which he later denied.

Concerns that policies introduced by the Trump administration could reignite inflation has led bond yields higher, with the yield on the benchmark 10-year US Treasury note hitting 4.73% on Wednesday, its highest since April 25. It was at 4.6709% on Thursday.

"Trump's shifting narrative on tariffs has undoubtedly had an effect on USD. It seems this capriciousness is something markets will have to adapt to over the coming four years," said Kieran Williams, head of Asia FX at InTouch Capital Markets.

The bond market selloff has left the dollar standing tall and casting a shadow on the currency market.

Among the most affected was the pound, which was headed for its biggest three-day drop in nearly two years.

Sterling slid to $1.2239 on Thursday, its weakest since November 2023, even as British government bond yields hit multi-year highs.

Ordinarily, higher gilt yields would support the pound, but not in this case.

The sell-off in UK government bond markets resumed on Thursday, with 10-year and 30-year gilt yields jumping again in early trading, as confidence in Britain's fiscal outlook deteriorates.

"Such a simultaneous sell-off in currency and bonds is rather unusual for a G10 country," said Michael Pfister, FX analyst at Commerzbank.

"It seems to be the culmination of a development that began several months ago. The new Labour government's approval ratings are at record lows just a few months after the election, and business and consumer sentiment is severely depressed."

Sterling was last down about 0.69% at $1.2282.

The euro also eased, albeit less than the pound, to $1.0302, lurking close to the two-year low it hit last week as investors remain worried the single currency may fall to the key $1 mark this year due to tariff uncertainties.

The yen hovered near the key 160 per dollar mark that led to Tokyo intervening in the market last July, after it touched a near six-month low of 158.55 on Wednesday.

Though it strengthened a bit on the day and was last at 158.15 per dollar. That all left the dollar index, which measures the US currency against six other units, up 0.15% and at 109.18, just shy of the two-year high it touched last week.

Also in the mix were the Federal Reserve minutes of its December meeting, released on Wednesday, which showed the central bank flagged new inflation concerns and officials saw a rising risk the incoming administration's plans may slow economic growth and raise unemployment.

With US markets closed on Thursday, the spotlight will be on Friday's payrolls report as investors parse through data to gauge when the Fed will next cut rates.