The Central Bank of Egypt (CBE) decided to liberalise the exchange rate and raised the interest rate by 2% in an exceptional meeting of the Monetary Policy Committee (MPC).
Over the past two days, the prices of Egypt’s bonds offered in euros and dollars in foreign markets increased, and the price of dollar-denominated bonds due in 2047 rose to 59.7% at the end of trading on Friday, compared to 59.07% at the end of Wednesday’s trading.
The cost of insuring the five-year sovereign debt fell to 1,063 points, compared to 1,156 points on 26 October.
This coincided with Egypt’s loan agreements of total EGP 9bn from the IMF and other development partners.
Hany Genena, an economist and lecturer at the American University in Cairo, said that the financing gap in Egypt is about $25bn, according to the CBE.
He added, “The financing package that Egypt obtained is positive, but we need additional solutions to bridge the financing gap, and there are three solutions, the first of which is foreign direct investment through the sale of state-owned assets as part of the strategy to exit some sectors for the benefit of the private sector.”
He pointed out that it is possible to return to the bond market, and it is likely that this would happen in the second half of next year. The third solution is hot money for dollar bonds, especially since bonds in the local currency will not become attractive until after the exchange rate stablizes, which is likely to happen in the second quarter of next year.
Geneina stressed that the indicator of the success of this move and avoiding the 2016 scenario is the reaction of both commodity and service exports. Another criterion is the decrease in the import bill, and everything else is a short-term reaction.