Qatar deposit conversion THE GULF state of Qatar said on Monday that it was ready to convert $2 billion it had deposited at the Central Bank of Egypt (CBE) into bonds, CBE Governor Hisham Ramez told reporters. The conversion was thrown into doubt last week when the Qatari government requested that the conversion be delayed. In response, a Central Bank official said that Egypt was ready to repay the Qatari deposit if talks to convert the funds into bonds did not succeed. During former president Mohamed Morsi's tenure, Qatar showered Egypt with some $7.5 billion as the Gulf country sought to back Morsi who hails from the Muslim Brotherhood. However, after the military deposed Morsi as president on 3 July, Egypt's relations with Qatar deteriorated. Saudi Arabia, the United Arab Emirates and Kuwait stepped in to support Egypt after Morsi's ouster, pledging a total of $12 billion in loans, grants and fuel shipments. Egypt has already received $5 billion of these pledges. In May, Egypt converted $2.5 billion of the Qatari loans into 18-month bonds at 4.25 per cent, and on 1 July it converted another $1 billion into three-year bonds at 3.5 per cent. Inflation edges down ANNUAL urban headline inflation fell to 9.7 per cent in the 12 months to August 2013, down from 10.3 per cent a month earlier, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS). On a monthly basis, inflation dropped to 0.7 per cent in August compared to 0.9 per cent in July. The overall inflation rate in August was 10.9 per cent. Cairo-based investment bank Beltone Financial ascribed the slowdown to lower consumption following the end of Ramadan and the curfew imposed in mid-August. It also said that improved exchange rates had led to cheaper import bills, which feed into the consumer price index. The Egyptian pound had gained momentum in August on the back of the aid Egypt had received from the Arab Gulf countries. Beltone predicted that urban inflation would stabilise at an average of 9.5 per cent in the fiscal year which began in July 2013, compared to 6.9 per cent in the previous year. “While we expect growth to pick up as a result of expansionary fiscal and monetary policies leading to demand pull inflation, we believe an improved currency and well-addressed supply shortage issues will limit increased inflationary pressures,” Beltone said in a note this week. NIR inches up in August EGYPT's net international reserves (NIR) inched up to $18.92 billion at the end of August, a marginal $34 million increase from July. On a year on year basis, the level of the reserves is now 25 per cent higher than in August 2012 and is now enough to cover 3.9 months of imports. The aftermath of the 25 January Revolution saw a depletion in Egypt's foreign reserves from a high of $36 billion in January 2011 to just around $12 billion in March 2013. Deposits from Turkey, Qatar and later the UAE supported the reserves. While August did not witness any new transfers from the Gulf countries, inflows of petroleum products as part of the support packages as well as the free shipments of oil agreed before the ousting of former president Mohamed Morsi saved Egypt around $600 million that it usually spends monthly on petroleum products, according to Prime Securities. Egypt has already received $5 billion from the $12 billion in financial aid announced by Saudi Arabia, UAE and Kuwait in July. The UAE has pledged a further $2 billion in aid to Egypt in the form of grants and interest-free deposits, raising the total support pledged to $14 billion. Encouraged by the now strong reserves, the Central Bank of Egypt last week sold $1.3 billion to the banks in its largest auction of dollars since the auctioning system was introduced last December to regulate the forex market. Prime Securities expects the supply of various types of petroleum products to further lighten the pressure on the reserves until the end of 2013. Moreover, the inflow of aid will push the figure to $22 billion, strengthening the pound's position to settle at LE7 per dollar by the end of the year. Egypt less competitive EGYPT retreated 11 positions to 118 out of the 148 countries surveyed in the Global Competitiveness Report launched last week. The retreat, according to the authors of the Report, is likely to have been influenced by the country's continued transition since the events of the Arab Spring. The report defines competitiveness as “the set of institutions, policies, and factors that determine the level of productivity of a country.” It bases the ranks of different countries on 12 factors including institutions, infrastructure, health and education, market size and the macroeconomic environment. The report also factors in a survey among business leaders, assessing the government's efficiency and transparency. According to the report, three out of the 12 areas are of particular importance to Egypt in improving its competitiveness. It needs to adopt a credible fiscal consolidation plan accompanied by structural reforms to maintain macroeconomic stability, the report authors say. The macroeconomic environment has deteriorated over recent years in Egypt, with the country coming in comparatively low in the report because of its widening fiscal deficit, rising public indebtedness, and persisting inflationary pressures. Measures to intensify domestic competition are needed and these would result in efficiency gains and contribute to energising the economy by providing access to new entrants, the report said, in turn making the country's private sector more dynamic and creating more jobs. Egypt's labour markets also need to be made both more flexible and more efficient. Switzerland maintained its five-year first ranking in the report, while Chad came in last.
