Egypt pays investors to restore confidence
Country’s currency under pressure after reserves fall to less than half of their level prior to Arab Spring
Egypt’s new central-bank Governor Tareq Amer sought to restore investor confidence battered by five years of political unrest by paying foreign investors the money owed to them in the aftermath of the 2011 uprising.
The central bank said on Tuesday that it paid $547.2 million (Dh2 billion), clearing the backlog of funds that it hadn’t allowed sellers of stocks and bonds to convert into foreign exchange earlier. While that immediately eases the dollar crunch, the move by Amer in the first week of his tenure also signals he’s readying for a more liberal currency policy, the investment-banking unit of the country’s biggest listed lender said. The benchmark EGX 30 Index of stocks responded with the world’s best performance yesterday. “It definitely signals more liberal foreign-exchange management in Egypt,” said Hany Farahat, a Cairo-based senior economist at CI Capital Holding, a subsidiary of Commercial International Bank Egypt. “It’s a significant positive catalyst, after a few months of none.”
The Egyptian pound is under pressure as foreign reserves tumbled to less than half of their level prior to the so-called Arab Spring, while tourism is struggling to recover in the wake of the bombing of a Russian passenger jet in October. Signs that Egypt may no longer restrict the repatriation of investment flows may boost the appeal of the country’s assets, Farahat said.
Equities in the nation’s $56 billion market rallied, sending the EGX 30 up 2.5 per cent as of 12:48pm in Cairo, the most since August. Commercial International, which accounts for 36 per cent of the measure, was the biggest contributor to the advance with a 3.6 per cent increase. The main index is still down 26 per cent on the year, in large part due to the shortage of dollars and restrictions on repatriation of foreign investor funds.
Dollar demand
The central bank also met 57 per cent of demand for dollars by local lenders at a regular currency sale on Tuesday, the highest proportion since Bloomberg started tracking the data in January 2013, and compares with about 20 per cent at all sales this year.
The monetary authority later issued a statement saying it implemented a “revised internal allocation process” at the sale. It didn’t give more information and officials weren’t immediately available to comment. Three bankers contacted by Bloomberg said they weren’t briefed on the new rules. This is not the first time the country has made dollar payments to foreign investors. In June, the central bank said it cleared half of the backlog without specifying an amount.