By: Mahmoud Hammad
Deputy Chairman of Egyptian Capital Market Association (ECMA) and CEO of Prime Holding, Mohamed Maher expected Foreign Direct Investments (FDIs) as well as exports to witness a revival by the end of current fiscal year 2016-2017. In an exclusive interview to the Middle East Observer (MEO), the official stated that the net volume of Egypt’s foreign reserve keeps increasing to 2011 levels as it increased by US$179 million –i.e. 0.6% on a monthly basis- to hit US$31.305 billion in May from US$31.126 billion. Thus, Egypt’s foreign reserve hiked following the rise in hard currencies reserves by around US$210 million.
Was it possible to raise the reserve more than the current rate?
Yes it was possible, Egypt paid US$500 million at the beginning of June as bonds for The Saudi Fund for Development (SFD) that was issued in 2012 in addition to paying US$750 million as part of state’s debts to foreign oil firms which is equal to the sum paid in May 2017. Accordingly, Egypt’s debts to foreign oil firms dropped to US$2.3 billion by the end of June 2017.
What is your opinion about the formation of Egypt’s foreign reserve?
Although foreign reserve reached these high levels, this was basically formed to access foreign loans; which makes it weak notably after taking in consideration that the short-term investments portfolio recorded US$9 billion -since the government’s decision to float Egyptian pound exchange rate in November 2016- including US$7 billion scheduled to be paid before late 2017 as mid- and long-term debts. Additionally, the government will pay US$720 million to Paris Club as well as US$1 billion set to be paid in October 2017 for a Turkish loan that Egypt received in 2012.
Does the CBE secure the foreign reserve value considering these sums that shall be paid?
Yes, and these payments are expected to be partly secured through the second tranche of IMF’s loan estimated at US$1.25 billion; which is scheduled to be delivered this month in addition to the third and last tranche of World Bank’s loan which is worth rise in demand and purchase power, thus, boosting interest rates on lending and deposit rates by 200 bps, i.e. 18.75 % and 19.97 %, is “useless”. The rates are expected to decline within a short period due to the current recession in investments, Maher noted, clarifying that the government should take in consideration the local investment that are worth ten folds of FDIs.
How do you see the current increase in Egyptian pound price?
US$1 billion and set to be delivered by the end of 2017.
Will the rise in interest rate lead to an increase in inflation rates?
Yes, raising the interest rate to such levels will have a negative impact on the current inflation as large firms producing basic commodities are the main borrowers, accordingly, prices will soar due to the increase in production as well as transportation costs of basic goods; notably steel.
How do you see CBE’s decision to raise interest rates? And would this shrink inflation rate?
The large increase in current and expected inflation rates is mainly related to dollar exchange rate not to the Any increase in EGP value will lead to a slash in foreign investments, increasing import rates, thus in turn driving the exchange rate to the current levels once more. The current exchange rate will continue in the range of 17-18 EGP until the end of 2017. The Egyptian pound is not expected to witness any increase until sustainable resources of foreign currency such as FDIs, export returns, and tourism revenues are to witness a revival and this is expected to happen by the end of FY2017-2018.
