Egypt’s newly designated central bank governor says signs of an easing of pressure on the local currency are emerging, with growing retail demand for the pound pointing towards stabilisation in the currency market.
In an interview with the Financial Times, Hisham Ramez, whose appointment was announced last week, insisted that the “worst is behind us”, as he predicted that fiscal reforms and an expected 4.8bn loan agreement with the International Monetary Fund would restore confidence in the country’s battered economy.
Mr Ramez, who is a former deputy central bank governor, was plucked by Islamist President Mohamed Morsi for the job from Commercial International Bank, the country’s biggest private lender, and takes over officially next month.
He will be starting his job amid growing currency market jitters, with the Egyptian pound losing more than five per cent of value against the dollar in recent weeks after the depletion of more than half the country’s foreign exchange reserves over the past two years of political turmoil.
The country of more than 80m people, nearly half of them living in poverty, has seen its economy suffer since the 2011 revolution that ousted Hosni Mubarak as president. Foreign investment has all but dried up and tourism receipts have plummeted because many visitors have been scared away by the frequent eruptions of violence.
Mr Ramez is a well-respected banker whose appointment was greeted as a positive sign by the business community. He has been reassuring local and foreign investors that political and economic stability will be restored and says that in the almost daily auctions that the central bank has been holding, in a limited and controlled attempt at devaluation, sellers of foreign currency were also now coming in.
Economists, however, say that so far his message is not resonating sufficiently, with demand for dollars still far outpacing supply.
“The central bank is trying to send the message that we should not see more weakness in the Egyptian pound and that the market should stabilise at this level. But the queue for dollars is still getting bigger and the fear is that this will increase the downside pressure on the pound,” says Mohamed Abu Basha, economist at Cairo-based EFG-Hermes, the investment bank.
Mr Ramez blames the panic that spread in the currency markets in December on “destructive” rumours about the banking sector, which remains healthy and liquid after having successfully weathered the global financial crisis in recent years.
Among his priorities as governor, he says, will be to provide greater transparency to the markets and openness to investors.
“We reached all the shocks you can think of,” he says, speaking in London on the sidelines of a conference. “We have economic problems but the population is getting more understanding about the problems and the economy is still functioning, the people are working, Egypt is a safe place.”
Dismissing fears of a currency collapse, he says arguments that the pound should have been devalued last year are “debatable” but supporting the currency was also necessary to avoid panic “across the board” after the revolution. “Maybe yes a devaluation could’ve started a year ago . . . it’s debatable . . . it could have made things much easier now,” he says.
Mr Ramez has not been involved in negotiations with the IMF on a $4.8bn loan that would boost confidence and bolster foreign exchange reserves (down to $15bn from $36bn in 2011). But he says the signs are that a deal is “near” and appears confident that the government is now on track to implement its economic plan.
There is now “a will” for raising sales taxes (scrapped a day after they were announced last month ahead of a referendum on the constitution). Egyptians, he adds, “understand” that subsidies, which account for almost a quarter of government spending, should be reformed to target the needy. “According to my understanding the IMF wants to see a [government] plan with a timetable and the government has a plan but it takes time, you can’t do this in one day.”
