Were Egypt's economy in good shape the news that the governor of the Central Bank of Egypt (CBE), Farouk Al-Okda, could be resigning may have passed unnoticed. But with deterioration across the board, the governor seemed like the last thread from which the economy was hanging. While the governor later denied that he has resigned, the rumour succeeded in bringing to the forefront the gravity of the economic situation. According to Hisham Halaldeen, director of Research at Naeem Brokerage, the potential departure of the CBE governor could be considered negative news not because of the individual per se, but because the CBE is a key position in the economic balance of the country. Halaldeen pointed out that the possibility that he could leave at this particular timing was difficult because Egypt is in a crisis. Halaldeen is reassured that Egypt has many good bankers that can take over, especially since the CBE is not about individuals but about a team. “If the team is intact, a good replacement is not an issue.” Nonetheless, he acknowledged that Al-Okda is a brand name and the news that he could be resigning was coming at a bad time. “It is a perception issue,” he said especially since the CBE has been doing a good job regarding monetary policies and has kept it in the best shape possible given the political circumstances since the revolution. The extent of Al-Okda's importance is clear in a note issued by Pharos Securities Brokerage earlier this month. The note had placed the possible departure of the CBE governor as a risk that could lead to further depreciation in the value of the pound. The pound has depreciated by only around six per cent since the revolution but earlier this month it began witnessing a sharper drop. The latter is attributed to the depletion of reserves to a minimum of $15 billion and scarcity of hard currency revenues. According to Hani Genena, head of research at Pharos, Al-Okda was successful in controlling foreign and domestic investor panic post the revolution. He did not impose any capital controls that could have augmented the situation. “He knows how to manage expectations and speculative attacks.” Furthermore, “he knows how to communicate with the banking community and is trusted by them. They understand his signals.” The Pharos note described Al-Okda as “the engineer of currency and banking sector reform and stability post the currency crash of January 2003.” He orchestrated the banking reform which enabled Egypt's banking sector to withstand the fallout from the global financial crisis. Genena stressed that if and when Al-Okda departs, his replacement must be someone who is familiar with his mode of operation, otherwise they may not be able to handle the situation at hand. “No one knows exactly the claim on reserves; they could be much smaller than appears to us,” Genena said, adding that when someone who does not have enough experience takes over, they may panic and place capital controls therefore leading to a currency crash. Moreover he said that Al-Okda's departure before the conclusion of IMF talks may signal that Egypt's reform programme is unlikely to be approved by the IMF board. This could be a deterrent to anyone to accept the position given that the likelihood of a currency crisis in the absence of an IMF loan in the very short term will be high. Al-Okda has held a tough position during negotiations with the IMF against the devaluation of the pound, realising that it would mean an inflated import bill. Looking forward, Halaldeen stressed that what is important at this point is not CBE stability but political stability and direction. “There is nothing the CBE can do if the political situation is bad and poses limitations.” He pointed out that unless there is a cash flow coming in to manage the balance of payments, a devaluation of the pound may be inevitable. “It is out of the CBE's hands.” Nonetheless, economist Fakhri Al-Fiqi believes that the coming months will be very sensitive and will need professionalism in monetary policy, especially if Egypt receives the IMF loan. The governor would need to strike a balance between pumping liquidity into the market while keeping inflation at bay. Al-Okda, who has been governor since December 2003, had wanted to resign even before the revolution, according to Al-Fiqi, but former president Hosni Mubarak held onto him. After the revolution Al-Okda's tenure was renewed for a third four-year term to insure stability of monetary policies. According to Al-Fiqi, when President Mohamed Morsi took over, Al-Okda expressed a desire to resign for health reasons but Morsi asked him to stay on until the end of the year. “For now it seems he will not be leaving, but sooner or later it is bound to happen.” Al-Fiqi stressed that Al-Okda has created an institution that is not dependent on an individual because he realises that he will have to leave some day.
