Egypt Appoints New Central Bank Head Amid Devaluation Debate

  • Outgoing Ramez was criticized by businesses over FX shortage
  • Analysts say new chief Amer likely to weaken Egyptian pound

Egypt’s central bank Governor Hisham Ramez resigned and will be replaced by Tarek Amer, a former chairman of the country’s largest commercial bank, amid a national debate on whether policy makers should push for a steeper currency devaluation.

Amer will take charge of the central bank after the end of Ramez’s term on Nov. 26, the presidency said in an e-mailed statement. Amer has also served as deputy central bank chief in the past.

Hisham Ramez
Hisham Ramez
Photographer: Karim Sahib/AFP via Getty Images

Under Ramez, the central bank has taken steps to conserve foreign reserves, which remain more than 50 percent below their 2010 levels as the country struggles to recover from four years of political unrest. The policies, which include restrictions on dollar deposits, have angered many investors who have called for a steeper currency devaluation to attract foreign inflows.

Ramez blamed the shortage on the “misuse” of dollars, urging a reduction of unnecessary imports -- a call that has been supported by President Abdel-Fattah El-Sisi. He said on Oct. 18 that “weak" foreign direct investments as well as low tourism revenues are the cause of the foreign exchange shortage.

“Today’s announcement suggests a further devaluation of the pound – something we think is necessary to revive the economy,” London-based Capital Economics wrote in a note.

Egypt’s reserves have dwindled to $16.3 billion, enough to cover about three months of merchandise imports. More than $40 billion in aid from friendly Gulf nations and a Eurobond sale have failed to ease the dearth of foreign currency.

“The impression was that the government and the president were happy with the central bank’s performance,” Raza Agha, chief economist for the Middle East and Africa at VTB Capital in London, said in an e-mail. “It’s not an easy job for anyone given where Egypt finds itself, particularly on the external financing front.”

Businesses Damaged

Amer’s appointment is a “step toward reform,” said Mohamed El-Bahey, an executive board member of the Federation of Egyptian Industries. “His first order of business should be to revise monetary policy, which has caused a lot of damage to industry recently."

Foreign investors have stayed away from Egypt out of fear that they might not be able to repatriate their money, El-Bahey said, calling for the restrictions on foreign currency put in place by Ramez to be revoked. The Egyptian pound should also be pegged to a basket of currencies, rather than only to the dollar, he said.

“This will boost competitiveness, and if it means a weaker pound, so be it -- as long as foreign currency is available," he said.

The central bank has allowed the pound to depreciate 11 percent since the beginning of the year, making it the worst Arab performer behind Algeria’s dinar. Even so, it changed hands at a 6.7 percent premium to the official rate in the black market on Tuesday, the biggest spread since January.

The currency, which is officially subject to a managed float by the central bank, was unchanged at 8.03 to the dollar after the announcement. Its 12-month non-deliverable forwards weakened 2.6 percent to 10 per dollar as of 2:36 pm in Cairo.

Pressure has mounted on policy markers to allow further depreciation after China’s currency devaluation in August sparked similar moves across emerging markets.

Amer served as chairman between 2008 and 2013 of the state-owned National Bank of Egypt, where he undertook reforms that were “applauded by regional and international financial institutions,” the presidency said.

Tarek Amer
Tarek Amer
Photographer: Shawn Baldwin/Bloomberg

The president “stressed the importance of working hard to provide all basic goods to citizens, especially food, medicine and fuel," his office said on Wednesday.

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