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Egypt’s IMF Loan Accord Unlikely Before Fourth Quarter, EFG Says

Egypt is unlikely to reach a loan accord with the International Monetary Fund before the fourth quarter, exposing the local currency to more pressure, investment bank EFG-Hermes Holding SAE said.

The $4.8 billion loan agreement requires the government to take “tough, unpopular economic decisions,” EFG-Hermes analysts Simon Kitchen and Mohamed Abu Basha wrote in an e-mailed report dated yesterday. Talks between the Arab nation and IMF officials this month in Cairo and Washington ended without a deal, disrupting a bond rally.

Egypt’s attempts to secure IMF assistance over the past two years have failed as political turmoil that followed the 2011 uprising prompted successive governments to renege on two initial agreements with the Washington-based lender. Under an IMF-backed program, Egypt will seek to enact economic measures, including a reduction of energy subsidies, a step governments under the deposed President Hosni Mubarak had failed to take.

“The government has done little in implementing meaningful fiscal reforms thus far,” EFG-Hermes analysts wrote in the report. The draft budget for the next fiscal year ending in June 2014 “shows an unrealistic timeline for reforms, where the government expects to take a number of inflation-generating reform initiatives in less than eight months,” they wrote.

‘Renewed Pressure’

A delay in IMF support, which the government expects to unlock more than $10 billion in additional funding, will leave the pound under “renewed pressure” toward mid-2013 “if not earlier,” the analysts wrote. The currency has weakened more than 10 percent since the central bank started limiting access to dollars through foreign-exchange auctions started Dec. 30 to stem the drop in reserves, data compiled by Bloomberg show.

Central Bank Governor Hisham Ramez said an agreement with the IMF may be reached this month or in May, the state-run Middle East News Agency reported today. The IMF said in a statement yesterday that “work will continue with the objective of reaching agreement on an IMF stand-by arrangement to support the authorities’ national economic program in the coming weeks.” A stand-by accord needs the approval of the IMF board.

Reserves have plunged more than 60 percent since the uprising to $13.4 billion in March, leading to the emergence of an unregulated market for dollars. Additional aid from Libya and Qatar will be used to cover the country’s essential needs, EFG-Hermes said, leaving the black market “to remain a key source for providing needed dollar liquidity for the private sector at least.”

Shares of Talaat Moustafa Group Holding, Egypt’s biggest publicly traded real-estate developer, offer a “good play” on expectations of inflation and currency devaluation, EFG said. The shares have dropped 6.6 percent in 2013, compared with a 3.8 percent decline in the benchmark EGX 30 Index.

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