Mixed report on economy THE CENTRAL Bank of Egypt (CBE) issued a report last week monitoring all economic developments during the past few months, reports Mona El-Fiqi. The document reveals that there are clear improvements in some factors such as the growth rate, foreign reserves, trade volume, yet some figures remain negatively changed such as the inflation rate and the external debt. The brief shows that Egypt's reserve money increased by LE15.5 billion, representing 11 per cent, to reach $32.9 billion during July/January 2007. It explained that this was due to the increase in both the currency in circulation outside the CBE, as well as the bank's deposits in local currency with the CBE. According to the report, domestic liquidity rose to LE724.7 billion at the end of January 2008, with an increase of LE62 billion during July/January 2007/ 2008. It also registered an improvement on the balance of payment during the first half of fiscal year 2007/2008, with an overall surplus of $3.1 billion against $2.9 billion. As for the volume trade between Egypt and the external sector, the report said that it reached some $37.5 billion up by 34.2 per cent during July/December 2007/2008, compared to the same period in the previous fiscal year. It added that the US was the main trade partner with Egypt, accounting for 24.3 per cent of the total trade volume. Meanwhile, the ratios of trade with other partners ranged between 6.3 per cent and 2.5 per cent, while the rest of the world stood at 31.3 per cent. On the consolidated fiscal operations of the general government budget sector during July/December 2007/2008, the report showed that total revenues reached about LE73.7 billion and total expenditures LE106.3 billion. Accordingly, the cash deficit reached LE32.6 billion. When adding the net acquisition of financial assets of LE3.2 billion, the overall deficit reaches some LE35.8 billion. According to the CBE paper, total domestic production at constant prices reached LE584 billion during July/December 2007/2008, against LE543.4 billion with a growth rate of 7.5 per cent, as compared to the same period of the previous fiscal year. Moreover, the report cited that during July/December 2007/ 2008, total implemented investments came at around LE90 billion with a growth rate of 42.4 per cent, compared to the same period of the previous fiscal year. Of this amount, the private business sector implemented around 72.8 per cent, the government sector about 13.5 per cent, economic authorities 3.7 per cent and public companies 10 per cent. The document also included some negative figures, such as an increase in external debt by about $2.9 billion to reach $32.8 billion at the end of December 2007. The report attributed this increase to the outcome of the net disbursement of $1.5 billion of loans and facilities on the one hand, and the appreciation of most currencies of borrowing against the US dollar worth 1.4 billion on the other hand. Another negative conclusion was that there is a persistent increase in food inflation and expected upward pressure over the coming period. "Elevated international food prices have led to the acceleration in domestic food inflation, which in turn have been propagated on non-food inflation," stated the report. Furthermore, the CBE Monetary Policy Committee (MPC) has noticed that in addition to manufacturing and construction, other sectors have started to record higher growth rates that may precipitate more inflationary pressures. However, the report added, the MPC will continue to closely monitor all economic developments, particularly the factors underlying inflation, and will not hesitate to adjust key CBE rates to ensure price stability over the medium-term. Energy cost rise sooner URGED by an all time record high of international oil prices, hitting the edge of $118 per barrel (pb), the government decided on Monday to accelerate the process of selling electricity and natural gas to energy-intensive local industries at higher prices. Hence, factories consuming 50 million kilowatts per hour of electricity or 66 million cubic metres of natural gas annually will purchase energy at $2.65 per one million British thermal unit (Btu) in the next few months, instead of by the end of 2009 as agreed previously. The current price is $1.6 per Btu. On top of the list come petrochemical, cement and steel industries. The increase in energy prices purchased by these industries was agreed upon in September 2007. However, it was decided to gradually incorporate the increase over a three-year period, after which factories would purchase energy at its cost price and not subsidised prices. For his part, Minister of Trade and Industry Rachid Mohamed Rachid dismissed the fact that the decision will negatively impact the final product. Rachid added that steel and cement are sold on local markets according to international prices, and the energy component represents but five per cent of the total production cost of these commodities. May deadline for bids THE CENTRAL Bank of Egypt (CBE) has given a 6 May deadline for the financial offers of the five financial institutions interested in buying up to 67 per cent of the state-owned Banque du Caire. The banks are supposed to be currently undergoing their due diligence and prepare an offer, to include the price and a plan to restructure the bank which has a heavy burden of non-performing loans. The five banks are the National Bank of Greece, the UAE-based Mashreq Bank, a consortium of the Arab Bank and Arab National Bank, the Saudi Samba Financial Group and the UK-based Standard Chartered Bank. Press reports quoted unidentified government sources as saying that the government plans to complete the sale by 30 June, and to include the sale proceeds in the fiscal year 2008/2009 budget. Proceeds will be used in repaying public sector debt and cover provision deficits in public sector banks. Much appreciated drop THE POUND is gaining ground against the free-falling dollar to reach LE5.43 on Tuesday, which is considered its highest level ever in three years. The dollar has been sliding against most major currencies due to a slowdown in the US economy and a ballooning deficit. While the government heavily intervened late last year when the dollar started to lose points to the local currency for fear of the effect of the retreat on the appeal of the Egyptian exports, analysts believe this time the case will be different. "The government is now allowing the pound to appreciate against the dollar to tame soaring inflation, which rose to 14.4 year on year in March, its highest level in three years," stated a commentary note issued by EFG-Hermes. Inflation was 12.1 per cent in February and 10.5 per cent in January due to food price inflation, a fact that pushed the Central Bank of Egypt twice this year to raise interest rates. However, the effect of the move is still marginal as it was not followed by the expected increase in deposit rates at commercial banks. The latter seem conservative to raise such rates as they already have surplus liquidity. Leaving the pound to appreciate against the dollar will at least lower the value of Egypt's dollar denominated imports bill, or what is known as imported inflation. "We believe that exchange rates are a more effective channel for fighting inflation than interest rates and subsidies, and that the government is likely to allow the pound to appreciate further in 2008," according to EFG. "We expect the currency to climb to LE5.4 by the end of June."
