The Central Bank of Egypt (CBE), in cooperation with other government institutions and banks, is considering launching two new initiatives, one to bolster faltering projects, and one to revive industrial production, according to a source within the industry.
To accomplish the first initiative, the CBE is considering three scenarios. The first would see the establishment of a holding company with a capital of EGP 7bn, to which banks under the auspices of the CBE would contribute; these banks would take over the direct infusion of needed liquidity to recommence production at the faltering factories.
The second scenario is to establish a fund to carry out the same role the holding company would play. The third scenario is to inject direct liquidity into the banks, whereby the banks would then grant funds to the faltering factories.
The first CBE initiative may benefit more than 2,500 faltering factories, according to speculation by the source.
To address the second initiative, related to encouraging local industry, the CBE will offer incentives to actors in different industries, including lowering the interest rate, and instituting a funding mechanism that will allow industrial owners to easily procure funding from banks.
The CBE will decide on a course of action regarding these two initiatives after the meeting of the Coordinating Council, which is scheduled for 10 January. The council was established to coordinate between financial and monetary policies.
Additionally, the Coordinating Council will discuss the procedures limiting imports that the CBE approved recently and the regulation of the maximum level foreign currency deposits in banks. The maximum deposit is currently $10,000 daily, and $50,000 monthly. The council will also address the dollar’s price against Egyptian pound, and the issue of the Egyptian pound’s interest rate.
During the first meeting of the Coordinating Council, held on 17 December 2015, the government and the CBE agreed to launch a programme to achieve macroeconomic stability. In the coming January meeting, the council will further discuss the parameters of the programme
The programme aims to narrow the country’s budget deficit to sustainable levels in order to alleviate the pressure on domestic liquidity. In addition, the programme aims to provide greater resources to the economic sectors to increase production, and hence reduce the consequent inflationary pressures.
The programme also includes maintaining price stability by avoiding double-digit inflation rates over the medium-term. This is in addition to reducing the country’s trade deficit by launching a strategy aimed at encouraging local production to meet the market needs.
The CBE and the government agreed as well to step up the structural economic reform agenda to raise the non-inflationary GDP, and to overcome the obstacles that limit the increase of investments.