After the last few years of economic instability which Egypt has experienced—including an exodus of foreign money, rising inflation, unemployment and a ballooning public debt, among others—things are at last beginning to look on the up. Egypt finally took the step in July to slash subsidies on fuel, a move many had been calling for for years. The government also recently raised 8.5 billion US dollars in under a week for the Suez Canal development project via a highly successful public offering. And at this year’s IMF and World Bank fall meetings in Washington, the country’s recent reforms received positive reactions, most notably from IMF Managing Director Christine Lagarde, previously scathing in her assessment of some of Egypt’s economic policies.
Hisham Ramez took over as governor of the Central Bank of Egypt in January 2013, while former president Mohamed Mursi was still in power. One president and almost two years later, Ramez remains at the head of the institution, presiding over the reforms he says are needed to bring Egypt’s economy back on track and to a point where it can generate a targeted 6-percent growth rate (the IMF and World Bank’s current outlook for Egypt puts growth at 3 percent by the end of the year).
Asharq Al-Awsat spoke to Ramez on the sidelines of the IMF and World Bank meetings in Washington to discuss the recent and future economic reforms, the Suez Canal public offering, and the prospect of Egypt seeking further loans from the IMF.
Asharq Al-Awsat: What was the nature of Egypt’s involvement at this year’s World Bank and IMF fall meetings in Washington? And what is your view of the IMF and World Bank’s outlook on Egypt’s economy, which projects 3 percent growth this year?
Hisham Ramez: We held many meetings and talks with investment banks, and we participated in all the official talks held by the IMF and the World Bank; all of these meetings were extremely positive. During my own meetings with IMF Managing Director Christine Lagarde, she greatly welcomed Egypt’s latest economic reforms, especially raising fuel prices [lifting subsidies], and said they were positive, bold and brave moves. There is a positive view of Egypt now, especially regarding our ability to achieve stability, both politically and in terms of security, and take bold measures to achieve economic reform. Everyone now awaits the “leap” which will provide new economic opportunities.
Regarding the IMF and World Bank’s 2014 growth outlook of 3 percent for Egypt, we are working to surpass this figure through implementing a number of clear steps to achieve economic reform. We have raised energy prices by 70 percent, a move no-one expected; we are aiming to reduce the budget deficit to 10 of GDP; and the Egyptian government is currently taking a number of steps to establish a new, unified investment law and unified alternative energy tariffs, as well as establishing a number of new laws for customs, taxes, and generally trying to improve the business environment in the country. These are measures we believe will encourage a large number of investors.
Q: Despite the optimism deriving from the reforms which Egypt has enacted, some are still worried by the rising double-digit inflation the country is experiencing at the moment, as well as the steadily rising unemployment and the magnitude of the public debt. How do you assess all this?
Inflation has now reached . . .around 11 percent, which, after raising fuel prices, is a very good figure and one that surpassed expectations. In terms of unemployment, our aim is to create more job opportunities. We are also aiming to undertake a number of additional economic reforms in order to achieve a recovery. The more we are able to achieve strong growth figures, the more the unemployment ratio will reduce.
In terms of the public debt, we expect it to shrink it from its current level of 93.8 percent of GDP to 91.5 percent by the end of the year. We also have a strategy in place to reduce this to 82.8 percent by 2017.
Q: In your view, how did the financial assistance provided to Egypt by Gulf countries in the recent period help the Egyptian economy? And do you think Egypt is in need of further Gulf money?
The financial assistance provided to Egypt by Saudi Arabia and the UAE had a positive effect on the Egyptian economy, coming at a very important time. We are grateful for this assistance; it helped us achieve economic stability, increased state returns, and helped the state meet its debt obligations. It also enabled us to import the strategic and necessary commodities we required. Our foreign reserves jumped from 14.9 billion dollars in June 2013 to 16.8 billion dollars in August 2014, which is why Standard & Poor’s raised its credit rating for Egypt from CCC+ to B- after three years without political stability. The Central Bank has provided 10.2 billion dollars to the banking sector since July 2013 . . .and it was able to pay back 1.5 billion dollars as part of the debts owed by the Egyptian General Petroleum Company [Egypt’s state-owned oil company] to foreign companies. All of these steps helped gain back the confidence of foreign investors and paved the way for us to achieve stability and attract more foreign currency.
However, Egypt cannot depend on [foreign economic] assistance alone; it is a country with a large economy, and our goal is to attract foreign investment in order to achieve growth and create job opportunities. In order to achieve this we must improve the investment climate. At the moment we are working to amend the current investment laws and establish a sole, unified investment law in the coming period to safeguard . . .the rights of investors. Egypt is therefore positioned to achieve large growth rates.
Q: Public subscriptions for shares in the new Suez Canal development project were very high. Do you see domestic public offerings for major projects such as this as an alternative to securing loans from institutions such as the IMF? Especially since talks between Egypt and the IMF over a 4.8-billion-dollar loan continued for three years without reaching the desired result . . .
Of course the Suez Canal public offering was a great result for us; the sale generated 8.5 billion dollars in just eight days, and demand was high throughout Egypt and wasn’t just concentrated in one particular area. The public offering proved that Egypt has high liquidity levels and it boosted Egyptians’ confidence in their country’s economy and their optimism for the future. But in the end, domestic public offerings cannot be considered an alternative to securing international loans, and we can’t just rely on our reserves to achieve the kind of growth rate we are hoping for, which is 6 percent. What we need is foreign investment, and there is certainly no objection to us going to the IMF when the time is right, and that is a likely scenario given our current needs, and a choice based on our previous discussions with the IMF.
Q: The IMF has announced it will be visiting Egypt in November to conduct Article IV consultations [an assessment by IMF experts of a country’s financial and economic state of affairs]. What kind of effect do you think this will have on foreign investors’ views on Egypt’s economy, and on the donors’ conference taking place in February?
Indeed, we invited the IMF to visit Egypt to conduct Article IV consultations to discuss the recent economic reforms the Egyptian government has undertaken. We will also be presenting to them the various investment megaprojects we have recently launched, such as the Suez Canal development project, the North Coast development project, and various infrastructure projects, in addition to all that Egypt is doing in terms of reforming the subsidies system and other financial reforms like achieving a stable budget deficit. The experts from the IMF will be drafting a report on all these issues.
We are seeing a very positive attitude from the IMF with regards to Egypt. This was made clear in Christine Lagarde’s recent comments about Egypt’s economic reforms and in its readiness to attend the international donors’ conference in Egypt next February. All these are positive indicators for foreign investors and [increase] confidence in the Egyptian economy and its future.
Q: Reports spread after the Suez Canal public offering that the Central Bank would be raising interest rates to help push down Egypt’s rising inflation. Is the Central Bank currently considering this step?
What we are seeking is to achieve stability for our currency. Our monetary policy will be decided with reference to the prevailing circumstances, and we will raise, slash or keep interest rates in coordination with the decisions of the [Central Bank’s] Monetary Policy Committee, which meets every six weeks . . . The most recent decision made by the Committee was to keep interest rates for lenders and borrowers at 9.25 and 10.25 percent respectively. We aim to produce balanced monetary policy which takes into account the dangers of inflation and GNP.
Q: There are some concerns among investors regarding the restrictions placed on moving funds into and out of Egypt. Is the Central Bank taking any steps to loosen these restrictions?
We are taking many steps in this direction, and set up a special fund during the previous period in order to ease the flow of money into and out of the country. We are now heading towards completely lifting these restrictions.
