| Egypt parliament dissolution to affect currency, finances |
LONDON The dissolution of the Egyptian parliament elected after last year’s overthrow of veteran president Hosni Mubarak has alarmed investors who fear the country will now hurtle towards a balance of payments crisis and currency collapse.
Growth in North Africa’s biggest economy has flatlined in the 16 months since the toppling of Mubarak’s 30-year regime. Currency reserves have halved, undermining the value of the Egyptian pound and troubling external creditors who are owed almost $6 billion over the next 12 months, according to data from Bank of America/Merrill Lynch.
Potential investors have been looking to this weekend’s presidential election to resolve the policy limbo and pave the way for aid and business finance.
Political tensions have been delaying the unlocking of aid from the International Monetary Fund and keeping away foreign investors and tourists. Meanwhile Egypt’s balance of payments gap ballooned to $11 billion in the first nine months of the 2011-12 financial year, more than double year-ago levels.
“It’s difficult to see political consensus forming and in the absence of that it’s difficult to see how you would get much support to plug external financial needs,” said Jean-Michel Saliba, Middle East economist at Bank of America/Merrill Lynch.
“At the moment there is no parliament, no constitution and no president.”
The news of the court ruling sent Egypt’s debt insurance costs soaring to three-year highs, meaning investors pay more now to insure exposure to Egypt via credit default swaps than during the uprisings that ousted Mubarak and other North African leaders.
“Whatever the ultimate outcome of these (Egyptian) events, the political and policy-making process has been complicated, delaying the likely implementation of the comprehensive macroeconomic and structural reforms needed to kick-start recovery and ease financing strains,” said Richard Fox, head sovereign analyst for Middle East and Africa at Fitch.
But most foreigners have already fled the market. Saliba reckons non-residents’ holdings of local treasury bills have fallen to $300 million from over $10 billion in December 2010 and puts foreigners’ total equity exposure at just $3 billion.
A default is not expected, says Kieran Curtis, a portfolio manager at Aviva Investors who holds the maturing dollar bonds. But he has hedged his exposure to the Egyptian pound because under the bond terms, the payout is based on the exchange rate.
Reuters
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