Welcoming the new leaders of the Central Bank and coordinating them with the Prime Ministry
Debate over the value, timing and policies of the IMF loan
Everyone expects a devaluation of the pound, but the controversy is over the timing and mechanism
Expectations of the pound price revolve around 22 to 24 pounds against the dollar
Goldman Sachs, in research heirs, called “Notes from our trip to Cairo,” said that they visited the Egyptian capital on September 12 and 13, and met a number of government and private sector officials, including the Minister of Finance, the Governor of the Central Bank, and heads of the Egyptian sovereign fund and local banks.
He said that the atmosphere was dominated by cautious optimism, given that the challenges facing the Egyptian economy can be managed and dealt with.
He said that there is great uncertainty about the timing, value and methodology of the widely expected agreement with the International Monetary Fund, but in general, officials were expecting it to expire before the end of September, and to be in the range of between 3 and 5 billion dollars, much less than their estimate in “Goldman” Sachs’ funding gap over the next three years at $15 billion.
But the finance minister said last weekend that reaching an agreement with the fund could take between one and two months.
Goldman Sachs said in his research paper that the general vision in Egypt is that the size of the loan does not matter, given that the Fund’s approval of it will mean its approval of the overall policies, and therefore it will be sufficient to increase market confidence and improve the future vision of financing, which is stimulated by the flow of portfolio investments and foreign direct investment. Especially in government assets.
However, the bank sees the size as important and expects the weak loan size to cause a negative market reaction as the country’s targets can be viewed as over-optimistic expectations and assumptions regarding external financing prospects and may risk undermining their credibility. To guard against this possibility, Goldman Sachs believes that clear communication about the macroeconomic policies underpinning the program along with credible commitments for any co-financing from the GCC and elsewhere would be important.
He said that the most obvious trend was the prevalence of expectations of the pound’s depreciation in the near term, which most local officials attributed to the Fund’s loan, and opinions were divided about the timing and whether the decline should be sharp or gradual, but most expected that its price would be between 22 and 24 dollars. for the pound.
Many believed that the expectations of the pound’s depreciation had negative repercussions, including the difficulty of importing, the high demand for the dollar and price increases, and the rushing of consumers and traders alike to buy goods and traders storing imported goods waiting for their prices to increase, which created a shortage and raised their prices.
He said that interest rates are expected to rise in the coming period.
The bank delegation noted that there is a wide welcome for the new leadership of the Central Bank and what this means for the improvement of coordination between the Central Bank and the government on the economic agenda.
The bank estimated that the average real income of Egyptians is about half of what it was 10 years ago.
He said that future exchange rate movements, whether the depth or speed of the pound’s devaluation, are subject to their impact on inflation and the standard of living, which may limit the exchange rate’s flexibility in the future.
In terms of fiscal policies, the decline in real wages leads to a decrease in the trend towards subsidy reforms and an increase in cash grants, which ultimately led to a restriction of the extent of possible financial adjustment in the budget.
He said the authorities’ ability to tighten policy is limited due to concerns about the impact on growth.
He added that at the level of the state’s role in the economy, while there was a real desire to reduce it and promote growth led by the private sector, the pace of this happening depends on the state’s belief that withdrawing its interventions in the economy improves the economic results of its people.