Egypt Signals Currency Shift With Payment of Foreign Duesby and
Central bank clears backlog of funds owed to investors
Benchmark stocks index climbs most in the world after decision
Egypt’s new central-bank Governor Tarek 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 Tuesday it paid $547.2 million, 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, according to CI Capital Holding, the investment-banking unit of the country’s biggest listed lender. The benchmark EGX 30 Index rose the most of any stock market in the world on Wednesday.
“It definitely signals more liberal foreign-exchange management in Egypt,” said Hany Farahat, a Cairo-based senior economist at CI Capital, a subsidiary of Commercial International Bank Egypt SAE. “It’s a significant positive catalyst, after a few months of none.”
The Egyptian pound is under pressure after 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 percent as of 12:48 p.m. in Cairo, the most since August and best among more than 90 gauges tracked by Bloomberg. Commercial International, which accounts for 36 percent of the measure, was the biggest contributor to the advance with a 3.6 percent increase. The main index is still down 26 percent on the year, in large part due to the shortage of dollars and restrictions on repatriation of foreign investor funds.
The central bank also met 57 percent 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 percent 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. In 2013, the central bank set up a fund allowing investors to move money in and out of Egypt more easily. Tuesday’s payments covered investors who were unable or unwilling to utilize that facility.
The pound’s official rate, which is controlled by the central bank, was unchanged at 7.8301 per dollar on Wednesday. Black-market dealers sold the American currency at 8.556 pounds yesterday following the central bank’s decisions, according to the average of four dealers in Cairo and Alexandria surveyed by Bloomberg, compared with 8.5933 last week.