Thursday, July 6, 2017

Are the reforms paying back?

Egypt launched a long-awaited economic reform programme last November as part of its deal with the International Monetary Fund (IMF) that has provided funds critical to preventing the pound’s meltdown as well as opening the door for foreign funds to flow back into the country.
The aggressive reform programme has covered the removal of subsidies, especially energy subsidies, considered one of the taboos for Egyptian economic policy-making since 1977 even though energy prices were raised in summer 2014. With the signing of the IMF deal last November, the pound was floated and energy prices increased leading to an unprecedented inflationary wave in which official inflation exceeded 30 per cent during the first few months of 2017.
After seven months of the deal, the government resorted to increasing energy prices again, but this time the increase was bigger than expected. Though it was an expected move, people were shocked by its size, and so they ought to have been. First, the rate of increase in gasoline 92 petrol prices has been more than 40 per cent, which puts huge pressure on households. Second, diesel prices have increased by more than 50 per cent, which is a major challenge since diesel serves as a basic energy source for the transportation of goods. Such a huge price increase will impact on the prices of nearly all other goods, even basic goods such as vegetables and fruit whose transportation costs are a significant part of their overall cost.
Third, one day ahead of the rise in prices, the minister of petroleum assured people that there would be no forthcoming rise only for people to be shocked the following day by the new prices. Fourth, it has been announced that electricity prices will also increase in a few weeks’ time, something which will increase the burden on households further and further erode their purchasing power.
The scale and timing of the rises were shocking, yet there are reasons that may explain why the government acted as it did. First, the unexpected spike in the dollar exchange rate from LE8.88 to LE18 doubled the energy subsidies bill. Second, oil prices increased from around $43 per barrel in 2015-2016 to around $48 in 2016-2017, which increased the subsidies bill further and made it critical for the government to push for large cuts. Third, the government needed to contain the country’s budget deficit, which had got out of control and was estimated optimistically at LE370 billion this fiscal year thanks to the five per cent hike in interest rates made by the Central Bank of Egypt (CBE) in the unrealistic hope of containing inflation.
The above reasons have put the government in a corner and made it important to push for aggressive cuts if it wants to keep its agreement with the IMF and ensure the next tranche of the loan. This is critical to keeping the door open for the external borrowing that has become the main source of foreign currency for the country. Despite the pain, this wave of price rises will not be the last, and a few more can be expected to follow every new tranche of the IMF loan.
From a strategic standpoint, it is important to look at the progress of the reform programme so far from two sides, fiscal and monetary. On the fiscal side, the government has raised energy prices twice, such that prices now are close to double those of last October with estimated savings of around LE55-60 billion, according to official estimates. In addition, the government has applied a new value-added tax (VAT) instead of the old sales tax to widen the tax base and increase tax revenues. This could add around LE25-30 billion to tax revenues, according to official estimates.
The government has also increased electricity prices, and another wave of rises to follow soon could save a total of LE35-40 billion, again according to official estimates. Other moves such as increasing the cost of public transportation will probably not lead to significant savings as increases in energy costs will eat into any savings. As a result, the fiscal reforms could lead to total savings of around LE115-130 billion.
From the monetary side, the CBE has made two critical moves. The first was floating the pound last November, which was expected, according to initial expectations, to raise the exchange rate from LE8.88 per dollar to LE12-14. Yet, the move in fact resulted in an overshoot of the exchange rate that reached LE18 per dollar due to a large uncleared backlog of demand for foreign currency at the banks, lack of foreign currency liquidity in the market after the float, and the delay in the move, all resulting in a big gap between the official and parallel markets.
Doubling the price of the dollar has more than doubled the energy subsidies bill, which would have witnessed an increase of around LE60-65 billion at prevailing oil prices before the last energy price hike. One might claim that the pound will rebound after the full implementation of the programme, which could be the case, though a slight recovery of 10-15 per cent for the pound is more likely than a strong recovery.
The second move made by the CBE was hiking interest rates to contain inflation, though this was very debatable given that the prevailing inflation is supply-driven caused by increasing input costs due to the pound’s devaluation, increasing energy prices, increasing customs rates, the application of VAT, and other things, rather than demand-driven, which is usually caused by a fast-growing economy and which can be contained by hiking interest rates to contain demand.
With LE3 trillion of local debt, every one per cent increase in interest rates will result in a LE25-30 billion increase in the cost of the debt. Thus, the ineffective five per cent increase in rates should result in increasing the cost of the debt by around LE125-150 billion on an annual basis, if it can be sustained. With around half of the outstanding debt being short term and needing to be refinanced soon, the actual increase in the cost of the debt is around LE65-70 billion this fiscal year, assuming the hike in interest rates will not be fully reflected in the cost of the debt immediately.
One might claim that the CBE can decrease interest rates any time it chooses, but this does not seem a reasonable scenario in the medium term as long as the IMF is engaged and would like to see the CBE taking a bold stand against inflation. In all cases, such moves had clear effects in the last fiscal year, and they will have an even bigger effect in the new fiscal year.
Accordingly, the burden on the budget due to monetary moves since the application of the IMF programme and assuming no increase in interest rates or increases in the dollar exchange rate is around LE125-135 billion on an annual basis, while the savings in the budget due to the fiscal austerity programme are around LE115-130 billion, including the upcoming increase in electricity prices and assuming no further increases in international oil prices. As a result, technically we have not really started saving yet, and more aggressive cuts need to be on the way to get the budget under control.
With this in mind, it is critical to question the implications of the monetary policy moves that have put a huge burden on the budget and the coordination between monetary and fiscal policy-making at such a critical time. If the results of the monetary policy moves have been realistically forecast, it would probably have been better not to embark on the reform programme on the basis of such a self-defeating model.
Omar El-Shenety
06 July 2017
This article was published in "Al Ahram Weekly"

Thursday, May 4, 2017

How Not to Decrease Inflation

Egypt embarked on an economic reform programme last November as part of its deal with the International Monetary Fund (IMF) to fix its chronic economic problems. With the package of reforms planned, it was expected that the country’s high inflation rate, of around 12 to 15 per cent, would get even higher, with an expectation by the government and the IMF for inflation to reach around 18 to 19 per cent in 2017-2018. To curb such high inflation, the Central Bank of Egypt (CBE) decided to raise interest rates by three per cent, a huge spike to avoid inflation getting out of control.

Despite this pre-emptive move by the CBE, inflation skyrocketed to above 30 per cent in the first quarter of 2017. And despite the huge difference between government and IMF forecasts on the one hand and the actual inflation rate recorded on the other, no one is questioning the validity of these forecasts or working to update them. Instead, the IMF is asking Egypt to raise interest rates once again to fight inflation.

Inflation is one of the key macroeconomic indicators of the economy. It is even the most critical for many people who may not understand or care about economic growth or the unemployment rate if they have a job but do care a lot about inflation. High inflation means large increases in the prices of goods and services, which indicate a decrease in people’s purchasing power. For the layman, it may not matter how much money he makes in nominal terms, but it does matter how many goods and services this amount of money will allow him to take home.

For most people in the economics and finance fields, increasing interest rates is the straightforward solution to high inflation. The assumption is simple. If inflation is high, this means the economy has been growing quickly, investment has been progressing, and demand for goods and services has been high. Thus, interest rates are a good cure as high interest rates will dampen investment, and thus decrease demand, which results in decreasing prices for goods and services, hence helping to curb inflation.

This sounds like an easy solution, but it only works if the inflation is caused by an increase in demand, as in the case above. Inflation can be caused by a growing economy and an increase in demand, what economists call demand-driven inflation, but there could also be other causes disconnected from demand and related to supply, such as an abrupt increase in the prices of goods due to the devaluation of the local currency or a spike in global oil prices or any other external shock. 

In such cases, increasing interest rates will dampen demand, but inflation will not be contained because prices did not increase in the first place due to high demand but rather due to increases in the costs of supply.

The simple lesson is that demand-driven inflation is best cured with interest-rate rises, while supply-driven inflation cannot be cured with interest rates. The experience of other countries facing supply-driven inflation, especially as a result of oil shocks, shows that interest rates are an ineffective tool in such cases, and that this type of inflation should be absorbed by the economy itself. This starts to cope by changing inputs for production, such as resorting to fuel-efficient production and transportation mechanisms to decrease supply costs or local manufacturing and import substitution. 

The difference between the two types of inflation was clearly shown with the huge increase in oil prices over the last decade then their severe decline over the last couple of years. The Western central banks did not change interest rate during these two episodes, simply because the inflation caused by increases in oil prices and then the deflation caused by their severe decline had nothing to do with demand and thus interest rates were not relevant to increasing and declining inflation.

EGYPT’S SITUATION: Looking at the situation in Egypt, the economy grew at around two per cent a year for four years after 2011 and then started to show signs of slow recovery when growth stood at four per cent over the last couple of years. 

During the current fiscal year and most probably over the next couple of years, there have been no signs of major recovery, however. At the present low levels of growth, Egypt is officially in a state of stagnation, and it is very hard to assume that the current high level of inflation is demand-driven.

In essence, the current inflation is clearly supply-driven, being caused by a combination of factors such as last year’s floatation of the pound that more than doubled the cost of imports, the increase in customs duties that increased the cost of imports even further, the restrictions on importing activities that made the availability of imports scarcer and their prices higher, the decrease in energy subsidies that increased local production and transportation costs across the board. 

These factors, as well as the expectation of their continuation in the short to medium terms, are the real reasons behind the inflation, which is clearly supply-driven. They are the direct result of the government’s economic reform programme. The government and the IMF expected a surge in inflation, and so did the CBE which pre-emptively used the typical cure of raising interest rates by three per cent. Yet, this large hike in interest rates had no visible effect on inflation, which exceeded 30 per cent in the last quarter, unprecedented in Egypt’s recent history. Such frustrating results should not have been a surprise, however, because the current high inflation rate is supply-driven, and increasing interest rates is irrelevant to curbing it.

The ineffective hike in interest rates did not go through without collateral damage, however. On the one hand, the cost of borrowing to the private sector by the financial institutions effectively reached 18 to 20 per cent. At such exorbitant interest rates, it is hard for the private sector to borrow and invest, deepening the current stagnation further. The government did not go untouched either. Being the largest borrower from the local banks, every one per cent increase in interest rates simply meant more than a LE20 billion increase in the cost of government debt, and thus the budget deficit suffered by more than LE60 billion at a conservative estimate as a result of the three per cent hike in interest rates.

So, who did benefit? The answer is portfolio investors who represent international funds focused on investing in government bonds. These saw the extremely high interest rates on Egyptian treasury bonds as a very good opportunity to make money, especially after the floating of the currency that eliminated currency risks in the short term. Inflows from portfolio investors are critical to supporting the Egyptian pound, but it is debatable whether the cost paid has been fair and if lower costs could have been paid to achieve the same result.

At this critical time, the IMF is now asking Egypt to work on curbing its inflation, which simply translates into hiking interest rates. It is hard to know whether the IMF directive is an order or a condition for the next tranches of the loan, but it would be hard to expect the CBE to decrease interest rates whatever the case may be, and most likely one or more hikes, even if small ones, will be seen in the coming quarters. 

However, such hikes will be ineffective in curbing inflation because the current high rates of inflation are supply-driven, and higher interest rates will not contain them. Instead, they will have wider collateral damage on government finances and the private sector, thus decreasing the prospects of economic recovery in the medium term.

The insistence on not differentiating between demand-driven and supply-driven inflation and the determination on curing both by raising interest rates is a case in point of the adage which states that “if all you have is a hammer, everything looks like a nail.”

Omar El-Shenety
04 May 2017
This article was published in "Al Ahram Weekly"

Monday, March 27, 2017

Five Myths about the Dollar

After a tough struggle to get the foreign exchange market under control with its huge gap between the official rate and the black market rate for the Egyptian pound, the Central Bank of Egypt (CBE) threw in the towel late last year and resorted to the long-awaited floating of the pound.

This had been widely opposed by many due to its inflationary effects, while it was cheered on by others because of its expectedly positive effects on attracting investment. The critical decision to float the pound was made in early November to satisfy one of the key conditions of the International Monetary Fund (IMF) deal, directly after which the IMF approved a loan to Egypt.
While the economy has been on a rollercoaster of reforms, many people disconnected from economic policy and unaware of its mechanics have been lost as a result and many still are.

The dollar exchange rate officially doubled overnight as a result of the floatation and with it prices skyrocketed. Other reforms have meant ever-increasing prices. While many economists expected the dollar to settle at lower rates than those on the black market after the floatation, the official rate kept on rising, and many had no alternative but to build their own theories because of the lack of a credible explanation.

Some of these theories are far from true, and one should shed light on five key misconceptions. The first one says that dollar fluctuations are part of an overall conspiracy by some people or institutions that benefit from such moves. While this is an easy explanation that is in line with the Egyptian way of interpreting events, there is not much evidence to support it. The study of other countries that have floated their currencies shows that this is usually followed by a transitional period of high volatility as the local currency, having been fixed for years, strives to find its true value in the market.

With every move in the exchange rate, analysts try to offer an explanation, and then only a few days later, after the exchange rate has moved in the opposite direction, they try to offer another explanation, which again does not hold for more than a few days. But what people are missing here is that the last few months, and probably the next few months too, should be considered as a transitional phase in which high volatility is to be expected. Understanding the nature of this phase and embracing this volatility is better than trying to offer unreasonable explanations for erratic movements in the exchange rate.

The second theory says that the dollar exchange rate will continue to go up without hitting a ceiling. For some people, holding dollars is therefore the best investment. They assume that the high gains the dollar has made over the past year will be fully or partially repeated over the coming years amid low foreign investment and struggling tourism.

But though the dollar may further increase in value if the economy does not fundamentally recover, it should not be assumed that there will be continuous increases without a limit. In the end, foreign currency is meant to be used for international trade purposes, and having a currency that loses a quarter or half of its value every year would not allow this international trade to flow. Thus, there is a limit to how much the dollar can increase every year after the floatation of the pound because if its value passes a certain limit import prices will become prohibitive. As a result, demand for dollars will decrease and its exchange rate go down accordingly.

The third theory says that the dollar will eventually go down to LE4. This was obviously a joke made by the CBE governor on a TV show that people picked up on and expected to be true or wanted to be true. While in a free-floating system any rate is possible based on market forces, it is hard to see the dollar at LE4 in the short or even the medium term. In the same way, it is hard to see the dollar worth LE50. 

The fourth theory is that the dollar will reach a fixed price soon. While the recent period has shown us that almost anything may happen, it is hard to believe that after floating the pound the CBE will return to a fixed exchange-rate system. Fluctuations are expected to be contained over the next few months compared to the erratic movements since the floatation. The dollar is expected to reach an indicative price, which will be the average rate of the fluctuations. This figure will change from day to day, and even this indicative price could change from period to period given general macroeconomic developments.

The fifth theory is that prices will stabilise as soon as the dollar stabilises. Though the dollar is expected to stabilise soon around an indicative price with less severe fluctuations, prices are not expected to stabilise, however. Price increases have not only been driven by increases in the value of the dollar, and other key factors have played a role, such as the application of the new value-added tax (VAT), increases in customs duties, indirectly levied barriers to imports, increases in energy prices, and the lag effect of the money printing that has taken place over recent years.

The cumulative effect of all these measures has lain behind the huge spikes in prices. Some of these drivers should stabilise soon, such as the changes in the exchange rate and money printing, but others such as the VAT and energy prices will remain in motion.

As a result, prices are not expected to stabilise with inflation at low levels, though it is expected that in a few months inflation that has skyrocketed above 30 per cent lately will decrease to 20 to 25 per cent with the dollar stabilisation. An exception to this would be fully imported products such as cars or electrical appliances, which have been priced at LE20 to LE25 to the dollar. With the dollar at lower levels, we will see a relative decrease in prices.

Contrary to widespread misconceptions, the dollar will still fluctuate in value, yet these fluctuations will be within a tighter range. Probably around mid-year the dollar is expected to stabilise around an indicative price, perhaps around LE15. It could even witness a decrease in value after Ramadan thanks to the extraordinary flow of dollars from Egyptians living abroad and coming to visit Egypt for the summer.

While dollar fluctuations are expected to be tamed and the exchange rate is expected to stabilise in a few months, inflation will stay with us for a while. We have not yet seen the end of the government’s reforms, and a few more reform waves are likely to follow in the next few years. Having said this, the upcoming inflationary waves are expected to be less severe than the current ones, which were exaggerated by the application of many reforms at the same time.
Looking beyond 2017, it is hard to reach a conclusive view about where the dollar will be heading. There are many variables that will affect the dollar’s value, including security that could affect tourism, international financial market trends and their effect on investment in emerging markets, the local political and economic situation that could affect foreign direct investment, or the revival of local manufacturing to substitute imports, among many others.

From a strategic angle, many macro-economic reforms are already in place. Though they could have been debated for years, they were critical and they have now been made. Yet, even these tough reforms alone are not enough, since many micro-economic policies are even more important to improve local competitiveness, remove barriers to investment, resolve profit repatriation issues, and create a level playing field for the private sector against the government and its related entities.

Without such policies in place, the bitter medicine we have taken will not yield the expected relief, and the dollar problem could become even worse in the medium term.

Omar El-Shenety
24 March 2017
This article was published in "Al Ahram Weekly"

Thursday, December 8, 2016

Pound stabilising on the expense of stagflation

This summer witnessed the escalation of Egypt’s economic problems, and these have now become hard to deny. The pound has kept on bleeding, and the problems have extended to the availability of the dollar and not just its high value in pound terms. This led to a surge of speculation on the pound, as many started to believe that a devaluation or floatation of the currency was imminent. By the beginning of autumn, Egypt was facing a currency meltdown in which the dollar was increasing by quarter or even half a pound daily.
After spending more than $30 billion of Gulf aid over the last couple of years, Egypt had to reach out for external help to prevent the pound’s collapse. After exhausting the Gulf aid, the country had to turn to the global lender of last resort, the International Monetary Fund (IMF). Borrowing from the IMF is not an easy task as it requires the commitment of the government to a harsh economic reform programme to get the country’s finances under control. However, this comes with a certificate of confidence that should spread global confidence in the economy.
The government properly understood the IMF requirements and put together a reform programme that fulfilled the IMF’s well-known checklist. The programme includes four main pillars. The first is the removal of subsidies by increasing energy prices as well as the cost of public services. The second is the application of the new value added tax (VAT) to replace the former sales tax to widen the tax base and increase tax receipts, as well as the new civil service law that decreases government salaries as a percentage of the country’s budget. The third is the application of a flexible exchange rate system to reflect the true value of the pound, and the fourth is the privatisation of some profitable state-owned enterprises and banks to increase government revenues.
It would have been insane to adopt such an aggressive reform programme even a few years ago, but the government has adopted it now and seems committed to it. It has moved forward with serious steps in order to introduce these four pillars, and what it has done has been more than enough for the IMF to grant Egypt a $12 billion loan facility coupled with a co-financing package of around $9 billion over a three-year period. Egypt has already received the first tranche of the IMF loan and part of the co-financing package. But while the deal with the IMF seemed inevitable to save the pound, it has had diverse effects on the economy and can be viewed from three different angles.
The first angle is concerned with the pound, which has been floated to move the official dollar exchange rate from LE8.88 to the dollar to around LE17-18 today, leaving people in shock. This has reflected positively on the availability of the dollar in the country’s banking system, and more people now realise that if there were gains to be made from speculating on the dollar these have now already been made and now is the time to sell dollars to the banks.
For the layman, the outlook for the dollar looks hazy, and many people are still afraid of new highs being reached by the dollar against the pound. It is normal to have this feeling after experiencing a currency meltdown. It is also worthy of note that after the floatation it would be wise to expect a period of three to six months of fluctuations in the exchange rate as the pound embarks on a journey of price discovery. At the end of this journey, the pound will stabilise around its equilibrium price, which is the price that creates a sustainable balance in the country’s balance of payments.
It is believed that a price level close to the initial price at floatation of LE13-14 pounds to the dollar is a good estimate of the equilibrium price, and the exchange rate should be able to reach this level within the first quarter of 2017. Such a level would be good enough to promote exports, while reasonable enough to allow people to buy the imported products that they simply cannot do without. The era of producing 100 per cent local products in Egypt is gone and is never to return.
The move to a freely floating exchange rate seems to be going reasonably well so far, and this has been reflected in the return of foreign portfolio investors to the Egyptian market by buying Egyptian government debt as well as the increase in the flows of dollars to the local banks from Egyptian traders at many levels. The IMF deal seems to have been doing reasonably well when it comes to the pound’s stability, and it would have been hard to have expected otherwise. If IMF involvement does not stabilise the pound, nothing will.
The second angle is concerned with inflation, which is now sky-rocketing and affecting people’s everyday lives. Inflation in Egypt has multiple reasons, including the devaluation of the pound, the removal of subsidies, the application of the VAT, the lack of availability of imported goods for long periods, the increase in customs duties and the excessive printing of the pound by the Central Bank of Egypt (CBE) over the past couple of years to finance the country’s budget deficit. This combination has been more than enough to push prices sky-high.
Many may hope that the latest spike in prices will be a sort of one-off, but the bad news is that it is just the first wave and more will follow over the coming couple of years as more subsidy removals take place and the lag effect of printing money comes to the surface. Official estimates by the government and the IMF expect inflation in Egypt to average 17 to 18 per cent over the next couple of years, or around seven to eight per cent more than the average of the past few years. It is worth mentioning that these are official estimates, and the real inflation that people feel when they buy goods and services will be higher due to differences in calculation methods.
The significant increase in inflation that is expected to stay with us for a while will hit the purchasing power of people whose incomes will not increase in line with the increases in prices. These people will thus find themselves less able to buy the goods and services they used to buy. The erosion of purchasing power will result in further squeezing the middle class, causing the lower part of it to move beneath the poverty line.
Finally, the third angle is concerned with growth, which was very slow for the four years following the 25 January Revolution at around two per cent, but then picked up over the last couple of years to reach around four per cent thanks to generous Gulf aid. The IMF loan is not expected to produce growth as quickly as had been hoped, since the erosion of purchasing power resulting from inflation will result in lower aggregate demand and thus stagnation in consumption in the economy. This will reduce growth in an economy in which domestic consumption contributes the most to economic activity.
Besides the hit suffered by domestic consumption, the recent significant increase in interest rates by the CBE has elevated borrowing costs to a level that is prohibitive to many companies, making effective borrowing rates as high as 20 per cent. This will decrease prospects for investment and will slow economic growth. FDIs (foreign direct investments) are expected to come after the IMF deal, but this will take time to show, and while flows from portfolio investors could be good for the currency, they have a limited effect on job creation and economic growth. The result of this could be a period of stagnation in which the economy will grow at around three to four per cent – too low to create a real increase in income per capita.
The bottom line is that the IMF deal was necessary to prevent a currency meltdown, but the pound’s newfound stability comes at the cost of stagflation (stagnation plus inflation) in the economy, which will have serious economic and social ramifications. Serious efforts by the government to speed up local and foreign investments, as well as widen social safety net programmes, are now critical if the country is to move through the transitional phase peacefully.
Omar El-Shenety
08 December 2016 
This article was published in "Al Ahram Weekly"

Sunday, November 13, 2016

The IMF deal is not enough

The bitter reality of the current status of the Egyptian economy has left no space for claims that things are going fine. The currency crisis in Egypt is hard to hide or contain when the parallel market rate for the dollar is currently double the official rate, causing a freeze in local and foreign investment inflows into the economy and a deficit in the supply of many basic goods in the local market.
The economic deterioration and surging currency crisis should not come as a surprise to anyone who has been following the development of the various economic drivers over the last few years. This disappointing course has pushed the government into seeking a loan deal with the International Monetary Fund (IMF) in order to provide enough foreign currency to save the pound as well as to gain a certificate of confidence from the IMF to help attract the foreign direct investment (FDI) needed to stir growth and contain unemployment.
Concluding a deal with the IMF is not an easy task, as it requires the borrower to undergo structural reforms aiming at financial sustainability. To that end, the government has had to do its homework by building an economic reform programme that aims at increasing revenues and decreasing costs. Four key directions have been adopted. The first is raising energy prices for petrol and diesel as well as raising the prices of public services such as water, electricity and others, in order to decrease government subsidies and bring these services closer to their market prices.
The second is the application of the new VAT (value added tax), which is intended to widen the tax base and increase government tax revenues. The third is privatising some of the profitable state-owned enterprises, whether companies or banks, through private sales or listings in the stock market. The fourth is the adoption of a flexible exchange rate system that will cut the parallel market as well as the implementation of a responsive monetary policy that will ease inflationary pressures.
These four directions should increase revenues and cut costs in order to substantially cut the budget deficit to a sustainable level.
An IMF mission visited Egypt and concluded a staff level agreement in August promising $12 billion in loans along with a further $9 billion to be raised from other financial institutions. This financing package is to be dispersed over three years and should be enough to prevent the pound’s meltdown and relieve the Central Bank of Egypt (CBE) from the excessive printing of money to finance the debt.
The agreement was supposed to be approved by the IMF board of directors in October during its annual meeting. Hence, some economists expected a devaluation to take place during the week of the IMF meeting as part of the deal. Some even went further by anticipating the details of the Central Bank’s steps.
Devaluing the pound or even floating it is imminent, and the detailed roadmap for it fired up the parallel market such that the dollar gained more than LE4 over a week or so of speculation. The IMF board did not discuss the deal in October, however, and IMF officials made it clear that Egypt should move forward with its reforms before receiving the loan.
A justified mood of suspense was created, as the history of Egypt’s relations with the IMF has not been very bright, with many promises and even agreements being made without delivery from Egypt’s side in some cases. The IMF has enough reasons to believe that the government may commit to reforms until it receives the first tranche of the loan and then back off from them. Most importantly, the reform programme has huge social costs, and it may lead to social unrest that will further hurt the IMF’s already controversial reputation.
The government’s response to the suspense was quick and decisive, as it confirmed its wish to move forward with the reforms and especially the subsidies cuts. The CBE will move forward with either floating the pound or devaluing it. It may be inadvisable to allow the pound to float freely with the country’s limited level of reserves, as the parallel market rate could reach unimaginable levels as a result. Probably the CBE will opt for a gradual devaluation that ends with a managed peg model that is flexible enough to cut the parallel market without the risk of a major decline, as has been the case in Nigeria.
With this determination to devalue the pound and cut the subsidies, one can fairly claim that securing the IMF package is now only a matter of time.
Aside from the economic reforms, there is also a political angle that makes Egypt too big to fail and highlights the strategic interest of the IMF in finalising the deal even if there are disagreements about the economic reform programme. With close to 100 million people, any major disruption in Egypt like what has happened in Syria would create a migration crisis on an unprecedented scale. In addition, the exporting of terrorism is a key concern that could make the powers controlling global financial institutions like the IMF very interested in securing a deal with Egypt to avoid its possible degradation or its becoming a failed state.
It is expected that the coming weeks will see cuts in the subsidies as well as a move from the CBE to devalue the pound. If the CBE goes for a gradual devaluation, which is highly probable, the official rate will increase significantly while the black market rate will be contained with more foreign currency from the market and more confidence in the pound. If the CBE allows the pound to float freely, which is not advisable, the exchange rate will skyrocket at first, but then should go down towards a more reasonable rate of probably less than the current black market rate.
The IMF deal will not only guarantee a short-term containment of the currency crisis but also the long-term stability of the pound. However, economic prosperity requires more than this. The government’s economic reform plan assumes that the IMF deal will encourage the flow of funds from portfolio investors, increased FDI and the return of tourism. The deal should get portfolio investors interested again, but it is hard to predict the instant return of those investors who invested more than $20 billion in government debt before 2011 but then quit the market after the revolution.
FDI is also not expected to flow quickly, as this comes from long-term investors, and their concerns are not just about the currency but also about the country’s bureaucracy and political stability. As tourism is directly tied to the security situation in the country, the IMF deal alone will not be enough to recover it.
On the other hand, the economic reforms are likely to cause a major inflationary wave that will probably be unparalleled in Egypt’s modern history. Hundreds of thousands of middle-class families may be forced under the poverty line due to the rising cost of living because of the subsidies cuts, the application of VAT, and the pound’s devaluation.
Ensuring social stability is as important as adopting a structural economic reform programme to ensure that the regime will be stable enough to reap the fruits of reform and accordingly pay back its debts. It is therefore important that the government adopt an integrated social protection programme that is broad enough to hedge against the social risks of reform and put in place a clear strategy for political and security stability that can contain any political and security risks.
The bottom line is that the IMF deal is critical to stopping the currency meltdown and achieving short-term economic stability, but it comes with huge social pressures as the resulting inflationary wave may be unbearable for many. But even with the deal in place, it is not enough alone, as the drivers of economic recovery will still require more effort. Without a comprehensive and integrated social and political framework, economic reforms alone will not yield the hoped-for fruits.
Omar El-Shenety
03 November 2016 
This article was published in "Al Ahram Weekly"

Friday, August 19, 2016

قرض الصندوق وانحسار الطبقة المتوسطة

بعد موجة الضغط الرهيبة على الجنيه فى الأسابيع الماضية، انصب انشغال الناس على سعر صرف الدولار فى السوق الموازية وكان على البنك المركزى اللجوء لحل طارئ لوقف النزيف. الكثير من المؤشرات أنبأت عن وجود مفاوضات مع صندوق النقد خاصة برنامج الحكومة الاقتصادى الذى لا يمكن انكار كونه مفصلا على اشتراطات الصندوق إلا أن الحكومة والبنك المركزى أكدوا على عدم وجود مباحثات على الإطلاق. بين عشية وضحاها، تفاجأ الناس بوجود بعثة الصندوق على أرض الوطن وسط ترحاب رسمى يصور أن الاتفاق مع صندوق النقد لن يوفر فقط قرضا كبيرا لكنه سيعطى أيضا شهادة ثقة تساعد على استقرار الاقتصاد وتبث الثقة فى الأسواق مما يساعد على تدفق الاستثمارات الأجنبية ويفتح باب الاقتراض الخارجى أمام الحكومة المصرية. لم تتعد زيارة بعثة الصندوق الأسبوعين ليخرج بعدها المسئولون المصريون ومن بعدهم مسئولو الصندوق ليعلنوا عن الوصول لاتفاق مبدئى تتلقى من خلاله مصر ١٢ مليار دولار من الصندوق خلال السنوات الثلاث القادمة لدعم برنامج الحكومة الاقتصادى على أن يتم تغطية ٩ مليارات دولار من مصادر أخرى.

برنامج الحكومة يصعب الحصول عليه بشكل متكامل لكن النظر لموازنة الدولة والتصريحات الحكومية يشير إلى أن البرنامج يستهدف السيطرة على عجز الموازنة وبناء الثقة فى الاقتصاد والجنيه على وجه الخصوص من خلال أربعة محاور. الأول؛ رفع أسعار الطاقة والخدمات العامة وتطبيق قانون الخدمة المدنية لخفض بند الأجور كنسبة من الانفاق الحكومى. الثاني؛ تطبيق ضريبة القيمة المضافة لزيادة الحصيلة الضريبية. أما الثالث؛ إيجاد نظام مرن لسعر الصرف يعكس السعر الحقيقى للجنيه، مما سيتطلب تخفيضا كبيرا للجنيه مرة أخرى، مما يعزز من تنافسية الصادرات ويحدث توازن فى ميزان المدفوعات. وأخيرا المحور الرابع يرتبط بزيادة إيرادات الدولة عن طريق بيع بعض الأصول العقارية غير المستغلة وخصخصة بعض الشركات العامة الرابحة عن طريق طرحها فى سوق المال.

إن المحاور الأربعة السابقة تهدف لزيادة إيرادات الدولة وكذلك خفض النفقات الحكومية بشكل سريع، مما يساعد على خفض عجز الموازنة لمستويات مستدامة ويحسن المناخ العام ويحدث استقرارا فى سعر الصرف، مما يزيد من العملة الصعبة المتدفقة على الاقتصاد. لكن تلك الإجراءات ستؤدى لموجة تضخمية أكبر من الموجات السابقة. ومن الجدير بالذكر أن مستويات الأسعار شهدت ارتفاعات كبيرة فى الفترة الأخيرة حتى إن الأشهر الأخيرة سجلت معدلات تضخم تقارب ١٥٪ وهو ما يعنى أن واقع الزيادة الذى يشعر به الناس عند شراء سلة السلع والخدمات أكبر من ذلك نتيجة الاختلاف فى طريقة حساب التغير فى الأسعار.

الجدير بالذكر أن تلك الارتفاعات الكبيرة تم تسجيلها قبل تطبيق برنامج الحكومة الاقتصادى المطلوب لإتمام الاتفاق مع صندوق النقد. أما وقد تم الاتفاق مع الصندوق، فلا مناص من المضى قدما فى تنفيذ برنامج الإصلاح الاقتصادى الذى سينطوى على إجراءات حرجة من رفع للدعم ورفع لأسعار الخدمات العامة وفرض للضرائب وكذلك تخفيض للجنيه مما سيؤدى إلى موجة تضخمية كبيرة ستشمل أغلب السلع والخدمات فى السوق، كما أن تلك الموجة ستؤدى لزيادة مضطردة فى الأسعار أكبر من أى موجة شهدها الاقتصاد فى العقود الثلاثة الأخيرة بسبب الأثر التراكمى لتطبيق تلك الإجراءات مجتمعة. لن تكون الموجة القادمة لارتفاع الأسعار بلا تكلفة اجتماعية وسياسية. فمع كل موجة من ارتفاع الأسعار يفقد الأفراد والعائلات جزءا من قوتهم الشرائية ومع الموجة العارمة المنتظرة فإن تلك الخسارة ستكون كبيرة جدا على أصحاب الدخول المحدودة والطبقة المتوسطة.

إن أصحاب الدخول المرتفعة بطبيعة الحال لديهم من الفوائض المالية ما يكفى لامتصاص تلك الارتفاعات. كما أن جزءا ليس بالقليل من ثرواتهم فى صورة دولار وعقار وهو ما يحفظ قيمتها. على النقيض محدودى الدخل سيزداد وضعهم سوءا وسيزداد حجم تلك الفئة حيث تشير الاحصائيات الرسمية عن أن ١٫٥ مليون أسرة نزلت تحت خط الفقر فى ٢٠١٥ فقط. كما أنه مع كبر حجم تلك الطبقة وارتفاع الأسعار بشكل جنونى يفوق عدة مرات مستوى الزيادة فى الأجور، فإن تلك الطبقة تتجه بمرور الوقت من درجة الفقر إلى درجة الفقر المدقع. تلك الفئة ليس لديها مساحة لزيادة دخلها بشكل قانونى ليتناسب مع معدلات الأسعار وليس لديها مدخرات لتعتمد عليها ولذلك سيلجأ بعضها للجمعيات الخيرية لسد الحاجة والبعض الآخر سيلجأ للأعمال غير القانونية، أما فئة الشباب فسيلجأ للهجرة خارج البلد وفى الأغلب بطرق غير شرعية. ويحتوى برنامج الاصلاح الاقتصادى الذى تم الاتفاق عليه مع صندوق النقد على تدعيم شبكة الضمان الاجتماعى من خلال زيادة دعم الغذاء وزيادة برامج التوزيع النقدى المباشر. النظر للجانب الاجتماعى فى البرنامج وتأكيد الصندوق عليه علامة إيجابية جدا وإشارة لاهتمام الصندوق بذلك الجانب فى الآونة الأخيرة على غير سابق عهده لكن ذلك لن يزيل أثر الاصلاحات السلبى.

أما الطبقة المتوسطة والتى كانت دائما صمام الأمان الاقتصادى والاجتماعى فى البلد، حيث تفضل الاستقرار على التغيير حتى ولو واجهت الصعاب، فإن تلك الطبقة ستواجه تآكلا فى قوتها الشرائية بسرعة كبيرة مما يؤدى إلى افقارها ونزول جزء ليس بالقليل منها بشكل سنوى دون خط الفقر لتنضم لفئة محدودى الدخل كما شهد العام الماضى. تلك الفئة تعتمد على دخل ثابت يصعب زيادته ومع تقلص قوتهم الشرائية ستواجه تلك الفئة مشاكل كبيرة بينما لن يكون متاحا لها اللجوء للجمعيات الخيرية المثقلة بخدمة محدودى الدخل. هذا التغير قد يدفع شباب تلك الفئة للاعتراض وربما الثورة على سوء الأوضاع. ولعل من الحكمة أن يبدأ أبناء تلك الفئة العمل على تقليص نفقاتهم بشكل كبير فى المرحلة القادمة والتركيز على الضروريات للتعايش مع تلك المرحلة الحرجة التى قد تمتد لعدة سنوات قبل أن نبدأ فى جنى ثمرات الإصلاح الاقتصادى إذا توافرت الظروف السياسية والأمنية المواتية على المستوى المحلى وكذلك إذا تحسن وضع الاقتصاد العالمى لينعكس إيجابا على الدول الناشئة بما فيها مصر.

عمر الشنيطى

 19 - أغسطس - 2016

نُشر هذا المقال فى "جريدة الشروق"

Monday, August 8, 2016

الرابحون والخاسرون من التحول الاقتصادى

طغت التطورات الاقتصادية على باقى الأخبار فى الأسابيع القليلة الماضية، فما بين ارتفاعات الدولار ومحاولات البنك المركزى ضرب السوق الموازية وارتفاعات الأسعار، والإعلان رسميا عن المفاوضات مع صندوق النقد. أصبح الاقتصاد القضية الأبرز فى الشأن العام. لا يلقى الناس بالا للمؤشرات الاقتصادية المعقدة التى غالبا لا يفهمونها، لكن ما يلفت انتباه الناس هو مستوى الأسعار لأن ارتفاعها يقلص القوة الشرائية للعائلات ويفقرهم بشكل مباشر. ولعل ذلك هو سبب تركيز الناس على اختلاف مستوياتهم على سعر صرف الدولار، حيث إن الكثير من المنتجات التى نستهلكها يوميا هى منتجات مستوردة يرتفع سعرها مع ارتفاع الدولار.

من الصعب إنكار مدى صعوبة الوضع فى ظل وجود بعثة صندوق النقد على أرض الوطن، لمناقشة قرض كبير يساعد الاقتصاد على عبور الأزمة الحالية. وعلى الرغم من أهمية ذلك الاتفاق والذى انعكس إيجابيا على سوق المال وسوق الصرف، إلا أن ذلك الاتفاق لن يكون بلا مشقة، حيث سيتعين على الحكومة تطبيق إجراءات حرجة، مثل رفع أسعار الخدمات العامة المدعمة وتخفيض الجنيه المصرى وتطبيق ضريبة القيمة المضافة وخصخصة بعض الشركات الحكومية. هذا الاتفاق سيدعم الاقتصاد بشكل سريع، حيث سيوفر ما يزيد عن ٢٠ مليار دولار، سواء من صندوق النقد أو المؤسسات المالية الأخرى، وهو ما سيعطى قبلة الحياة للجنيه وسوق المال على المدى القصير. لكن الإجراءات التى ستواكب القرض مجتمعة ستؤدى إلى موجة تضخمية كبيرة، أعلى من الموجات السابقة التى يأن الناس منها.

هناك اعتقاد سائد أن سبب ارتفاع الأسعار أخيرا هو الدولار وأنه مع القرض سيتم السيطرة عليه، وبالتالى السيطرة على التضخم، ولكن ذلك الاعتقاد خاطئ إلى حد كبير، حيث إن ارتفاع الأسعار ناتج عن مجموعة من الأسباب، منها ارتفاع الدولار بالتأكيد، ولكن عوائق الاستيراد وعدم توافر الدولار لا يمكن إنكار أثرها على توافر العديد من السلع ومن ثم سعرها. ومما لا شك فيه أن الجنيه سيشهد المزيد من التخفيض مع قرض الصندوق، وكذلك عدم توافر السلع فى السوق سيزداد مع عوائق الاستيراد المفروضة. ولذلك فإن مثل هذا الاتفاق، على الرغم من مميزاته، إلا أن تكلفته الاجتماعية لا يمكن إنكارها وافتراض أن القرض سيسيطر على سعر صرف الدولار، وينهى الموجة التضخمية بعيدا عن الواقع.

الوضع الحالى الذى جعل من الضرورى اللجوء للمؤسسات المالية العالمية واتخاذ إجراءات حرجة، يؤرخ نهاية مرحلة اقتصادية وبداية مرحلة أخرى. ومع أى تحول تتغير الخريطة الاقتصادية، ويكون هناك رابحون وخاسرون. الاقتصاد المصرى ليس حديث عهد بالتحولات، حيث شهد نقلة كبيرة من الإقطاع واقتصاد السوق إلى الاشتراكية والتأميم فى الخمسينيات والستينيات، ثم ما لبث أن شهد نقلة أخرى من الاشتراكية للانفتاح واقتصاد السوق، غير أنها كانت نقلة غير مكتملة فى السبعينيات. وشهدت التسعينيات استكمالا لتلك النقلة مع برنامج الخصخصة والانفتاح على الأسواق العالمية وزيادة المنتجات المستوردة فى سلة المنتجات التى تستهلكها الأسرة المصرية وتدفق الاستثمارات الأجنبية على مصر.

ففى الثمانينيات والجزء الأول من التسعينيات، كان الاقتصاد يعتمد إلى حد كبير على التصنيع المحلى، حيث كان الاقتصاد قادرا على توفير أغلب احتياجات الناس الأساسية، لكن كانت الخيارات محدودة للمستهلك بطبيعة الحال حتى إن الناس كانوا يتباهون بشراء الملابس المستوردة آنذاك وكانت الرحلات لبورسعيد لشراء المنتجات المستوردة من السوق الحرة هى الشكل الأصيل للتبضع. النصف الثانى من التسعينيات شهد تحولا كبيرا حيث انفتح الاقتصاد المصرى على الاقتصاد العالمى فى وقت كانت العولمة هى الكلمة الأكثر استخداما، ومع دخول مصر فى اتفاقية الجات كان عليها فتح أسواقها، كما فتحت الأسواق العالمية للمنتجات المصرية. بدأت الأسرة المصرية فى التعرض لنوعية مختلفة من المنتجات كانت لا تراها إلا فى الأفلام أو مع المصريين القادمين من الخارج، مما وضع المنتج المصرى فى منافسة لم يكن مستعدا لها.

التحول من الاستهلاك المحلى للاستيراد لم يحدث بين عشية وضحاها. فبعض الشركات انتبهت لهذا التغير وتفاعلت معه بتغيير نشاطها أو على الأقل تنويعه من التصنيع المحلى فقط للدخول فى التجارة لاسيما الاستيراد. وقد برز ذلك فى تحول بعض العائلات العريقة فى مجال صناعة الغزل والنسيج من التصنيع المحلى للاستيراد خاصة من الصين وتركيا، حتى إنه بعد مرور قرابة عقد، بعض تلك الشركات خرجت من التصنيع واكتفت بالاستيراد والتجارة التى كانت أكثر ربحا وأقل عبئا. على الناحية الأخرى تشبث البعض بالصناعة بدون ميزة تنافسية، وظلوا ينزفون لسنوات فى ظل عدم القدرة على منافسة المستورد، بينما ركز البعض الآخر على بناء ميزة تنافسية فى منتجات تستهدف أسواقا بعينها محليا وعالميا، معتمدين على انفتاح الأسواق. الخاسرون كانوا من تشبثوا بالصناعة بدون ميزة تنافسية وغضوا الطرف عن انفتاح السوق. أما الرابحون كانوا من غيروا النشاط سريعا للاستيراد والتجارة أو بنوا مصانع كبيرة معتمدين على قروض بنكية واستثمارات مؤسسية.

مع التغيرات الحالية، يحدث تحول مرة أخرى لكن هذه المرة فى الاتجاه المعاكس. فمع قيود الاستيراد العديدة التى ستزداد بمرور الوقت وعدم توافر العملة الصعبة وارتفاع سعر صرف الدولار، فإن الخاسرين هم المستوردون. أما المصنعون المحليون فلديهم فرصة كبيرة لزيادة إنتاجهم فى سوق به عرض محدود لا يستطيع تغطية الطلب. لا ينطبق هذا الكلام على سوق الغزل والنسيج فقط بل يشمل الكثير من القطاعات. التصنيع بهدف البيع المحلى لسد الفجوة فى السوق بعد تراجع الاستيراد أو التصنيع بهدف التصدير للاستفادة من سعر الجنيه المنخفض، ستكون الأنشطة الرابحة.

قد لا تكون سياسة إحلال الواردات بالمنتج المحلى سياسة اقتصادية موفقة على مستوى الاقتصاد الكلى، حيث إن تجارب الدول الأخرى فى هذا الصدد، تشير إلى أن عوائق الاستيراد التى تفرضها الدولة تقابلها عوائق للتصدير تفرضها الدول الأخرى، مما يفشل هذه السياسة ويعزل اقتصادها عن الاقتصاد العالمى. لكن بعض الشركات ستستفيد من تلك السياسة خاصة الشركات التى ستتحرك سريعا لاقتناص الفرصة، أما المتباكين على تقليص الاستيراد فسيفوتهم القطار.

عمر الشنيطى
 8 - أغسطس - 2016
نُشر هذا المقال فى "جريدة الشروق"