The Arabist

The Arabist

By Issandr El Amrani and friends.

Periodic reminder to freak out

… about Egypt's economy — generally, with all the excitement about politics, it just isn't done enough. Just spent some time working on this today — not only has Egypt spend about $20bn of its reserves defending its currency since January 2011, it also spend several billion in a secret stash and maybe up to $10bn in an account at the National Bank of Egypt. Total: $35bn or so. Ay khidma?

The signal everyone is waiting for to start helping Egypt: a deal with the IMF, which would open up the taps elsewhere. But also force some reserve targeting at the Central Bank, which means there'd be less defense of the EGP. So a gradual devaluation is the best case scenario. Check out what the FT's Beyond BRICs blog thinks is the worst:

With money in the kitty for less than three months’ imports, the finance ministry boldly intervened on Monday by announcing (not for the first time) a deadline for securing agreement on the $3.2bn IMF loan which could be followed by $7bn from other donors.

But Said Hirsh, an economist with Capital Economics, told beyondbrics: “This isn’t necessarily the last word. Just look at the previous statements."

Citigroup estimates that Cairo could get by until the end of September.

Although it is likely to be tight and the room to manoeuvre extremely limited, we think the government will just about be able to muddle through until September, and then reach an agreement with the IMF. However, the downside risks will remain considerable. Moreover, the problem is that, by attempting this course, if events do blow the economy off track in the coming months then there are few options for the government and it really could potentially face the prospect of an uncontrolled devaluation.

So if there’s no IMF deal, there’ll be a foreign exchange crisis. But if there is to be a deal, there has to be compromise between the ruling military council and the opposition forces. The currency markets are signalling that time’s running out.

What's blocking an IMF deal is the MB's refusal to approve a deal while Ganzouri is PM, and the IMF's reluctance to make a deal with a government that will only last another two months or so and is likely to be replaced by a MB-led one. The MB may be right to demand that the government give an indication of how it wants to spend the money, and of next year's budget (which will have to be approved by parliament by June) more generally. But one suspects the MB is also using this issue as part of its wider recent confrontation with SCAF.

The government now says it expects a deal by May 15 but frankly, who knows?

Who knows what could happen between now and then!?