Egypt’s foreign currency reserves fell by $400 million in July, a significant reduction on the $3.9 billion reported in February. The drop came on the back of moves by the Central Bank of Egypt (CBE) to restrict imports, actions which CBE Deputy Governor Gamal Negm told the Middle East News Agency on 13 August were necessary to head off “a significant devaluation of the Egyptian pound”.
Negm’s remarks came amid foreign media reports that the International Monetary Fund (IMF) is increasing pressure on the government to devalue the Egyptian pound as a pre-condition for approving a new loan. Bloomberg reported this week that the IMF believes the pound remains overvalued, even after losing 20 per cent against the dollar since March.
Some economists argue that the CBE’s import restrictions will serve only to strangle production and threaten to bring economic activity to a halt. They have called on the CBE to lift import restrictions and allow the pound to float freely. Only when it exchanges hands at a fair value, they argue, will people with dollars be willing to trade them on the market.
Bloomberg Asharq quoted an anonymous state official earlier this week saying that the government is considering a $5-6 billion Eurobond issue. There have also been unconfirmed media reports that Egypt is seeking to raise $2.5 billion from regional and international banks.
In addition to looking for foreign assistance and hard currency loans, the government remains intent on promoting economic activity that attracts hard currency, something that was underlined in the exchange of economic portfolios in this week’s cabinet reshuffle. While a number of economic group ministers remain, those that were changed were the ministers heading portfolios that will have a central role in ensuring the economy pulls through.
The surprise cabinet shake-up came as the war in Ukraine continues to hit the Egyptian economy hard, increasing the import bill and, largely through the decline in tourist numbers, reducing inflows of foreign currency.
Foreign reserves stood at $33.14 billion in July, almost 20 per cent less than in March as the bank had to withdraw funds to cover portfolio outflows, finance imports, and meet debt repayments.
The immediate task facing the newly-reshuffled government, says Cairo University professor of finance and investment Hisham Ibrahim, will be to address the economic fallout of the Ukraine crisis and shore up Egypt’s foreign exchange reserves.
“It can do this in four ways: engineer a revival of the tourism sector as a major foreign exchange earner, restrict imports, press ahead with its radical privatisation programme, and conclude a successful agreement with the IMF at the end,” says Ibrahim.
The changes in the economic group involved three ministers: minister of public enterprise Hisham Tawfik was replaced by Chairman of the Cairo Company for Glass Manufacturing Mahmoud Esmat; minister of trade and industry Nevine Gamea was removed to make way for the chairman of the House of Representative’s Economic Affairs Committee Ahmed Samir; and minister of tourism and antiquities Khaled El-Anany was sacked in favour of Commercial International Bank Chief Ahmed Eissa.
“It was important to make changes in the public enterprise sector as the government prepares the ground for its privatisation programme,” said Ibrahim.
In May, Prime Minister Mustafa Madbouli, who remains in post, unveiled a raft of new privatisation measures. The government, he said, aims to raise $10 billion each year over the next four years, mainly through selling stakes in state-owned companies to local, Arab, and international investors.
MPs are divided over why Tawfik, who had served as minister of public enterprise since 2018, was sacked.
While Moataz Mahmoud, head of the House’s Industrial Committee, believes Tawfik was removed because he was not pushing the new privatisation programme along fast enough, MP Mustafa Bakri says the portfolio changed hands because of warnings that Tawfik’s policies could spawn a wave of unrest.
In a TV interview on Sunday, Bakri claimed that Tawfik’s rush to liquidate public sector companies like the Iron and Steel and Al-Nasr Coke and Chemicals had triggered concern.
“We think the government should be in the business of selling public companies to investors, not liquidating them. Liquidation means laying off large numbers of workers, and that courts social unrest,” he said.
According to Ibrahim, replacing the ministers of trade and industry and tourism and antiquities is a signal the government wants these two sectors to regain their pre-crisis roles as generators of foreign exchange and of job opportunities.
“The new tourism minister is a banking expert, and he will be charged with accelerating the sale of state-owned hotels to foreign investors and make up for the loss of Ukrainian and Russian tourists by tapping new markets.”
As a part of its privatisation programme, the government has already merged seven state-owned hotels, including the historic Old Cataract in Aswan, into a single company, stakes in which it hopes to sell to foreign investors, with the Saudi Public Investment Fund topping the list.
The new Trade and Industry Minister Ahmed Samir comes from an industrial background and is aware of the problems facing the manufacturing sector. According to Ibrahim, he will be required to boost industrial exports while overseeing the new import restriction regime in place since March to help save hard currency.
Finance Minister Mohamed Maait and Planning and Economic Development Minister Hala Al-Said both remain in post, a sign that they retain the confidence of the president. Maait and Al-Said are directly responsible for overseeing ongoing negotiations with the IMF.
Both ministers have also won the admiration of a majority of MPs.
“MPs’ views of Maait and Al-Said are mostly positive. Both have always been keen to come to parliament, respond to MPs’ questions and reach consensus solutions on budgetary allocations,” says Bakri.
The same cannot be said of the outgoing ministers of public enterprise and education, who Bakri says often refused to come to the House. When they did show up, he continued, their response to MPs’ arguments was passive at best.
Ibrahim expects that the cabinet shake-up will also give a push to plans to reduce electricity consumption to allow for the export of 15 per cent of natural gas production, netting an extra $450-500 million a month in revenues.
Minister of Electricity Mohamed Shaker, in office since 2014, is expected to hold a press conference in the next few days to announce details of the measures being planned.
*A version of this article appears in print in the 18 August, 2022 edition of Al-Ahram Weekly.