Niveen Wahish reviews ongoing efforts to put a brake on the negative impact of the global slowdown on Egypt's economy These days everything seems to begin and end with the financial crisis. Yesterday the budget for Fiscal Year (FY) 2009/10 was scheduled to be presented to the cabinet. Increased spending to finance the government's stimulus package, coupled with lower revenues as a result of slower economic growth, is expected to result in a deficit of around 7.5 per cent in the LE410 billion budget. The decline in growth rates to between four and 4.5 per cent forecast by Egypt's minister of finance does not help much. Egypt's growth peaked at 7.2 per cent in fiscal year 2007/08. Another manifestation of the crisis was a decrease in the value of the pound, down from LE5.60 to LE5.75 per dollar earlier this week. While a drop had been on the cards -- fuelled by falling demand for Egyptian exports and reductions in receipts from hard currency earners such as the Suez Canal, tourism and workers' remittances -- it was not expected to be so sharp, or so soon. Mohamed El-Abyad, head of the Foreign Exchange Division at the Federation of Chambers of Commerce, attributes the rising value of the dollar to the fact that banks were not meeting demand readily. This has triggered speculation that dollars may be in short supply. El-Abyad pointed out that the Egyptian market is very susceptible to rumours. When the value of the pound falls "people rush to buy the hard currency as a way of preserving the value of their savings thus augmenting the situation." The fall in the value of the Egyptian pound did not last for long. The Central Bank of Egypt (CBE) quickly intervened, pumping dollars into the banking system and effectively ending any escalation in the price of dollars. Since the end of the week the dollar is trading at around LE5.65. It is not the first time the CBE has intervened in the foreign exchange market, though it has done so more discreetly on previous occasions. According to one banker, the CBE wanted to deliver a clear message that it possessed the resources to intervene should it see the need. The CBE holds $33.1 billion in hard currency reserves. "If we do not use the reserves in such a situation, to protect our currency and our interests, what good are they for?" he asks. But some observers fear the CBE intervention could encourage further speculation in the market with any additional dollars quickly purchased and then hoarded. The CBE, they say, risks getting caught in earlier cycles when any intervention served only as a temporary analgesic quickly followed by further speculation. It is no secret that the CBE's monetary policy target is price stability -- inflation targeting by default. In fact, the latest CBE intervention might be intended just for that purpose. Inflation in February was running at 14.2 per cent, up 0.2 per cent on January's figures. This is far higher than the 10 to 11 per cent that had been predicted. Minister of Finance Youssef Boutros Ghali was quoted this week as saying that the rise in prices was not alarming and could be attributed to seasonal increases. Still experts fear that a slide in the value of the pound could fuel inflation given that it makes imports more expensive. According to recent CBE figures, imports reached $28.2 billion during the first half of FY08/09. This whole situation could improve should hard currency start flowing again through foreign investments, increased exports and tourism revenues. But while net foreign direct investments reached $13 billion in FY07/08, it is forecast that they will drop by half in FY08/09. Both the government and the private sector are lobbying hard in an attempt to stave off this collapse. A two-day Euromoney Egypt Investors' Conference began in London yesterday, offering an opportunity for a handful of high-profile Egyptian officials to sit with investors and discuss Egypt's economic outlook in light of the global slowdown, making a case for Egypt as an investment destination in turbulent times and highlighting the opportunities offered by Egyptian market. And next week sees the annual door- knocking mission to the US by the American Chamber of Commerce in Cairo (AmCham). The progress of the 50-strong delegation will be carefully watched: not only is it taking place in the eye of the global economic slowdown, but will be the first encounter with the new US administration. Launched under the theme "Stronger Ties in Uncertain Times", the mission is the largest ever. Hisham Fahmy, executive director of AmCham, told Al-Ahram Weekly that the mission will captialise on the willingness of the administration and Congress to listen to its views. AmCham will depend on its corporate US members to make a case for Egypt within Congress. "By showing their success in Egypt these companies can promote the Egyptian market to US companies." They will highlight, among other things, how Egypt could be a gateway to numerous other markets through its membership in other trade blocs. There are other Egypt related meetings in the US scheduled in the coming week, including visits by Minister of Investment Mahmoud Mohieldin and Minister of Transport Mohamed Mansour. "The more the merrier," says Fahmy, who adds that with so many countries promoting themselves in the US Egypt cannot afford to be left out.
