Tug of war THE EGYPTIAN government's quest for a $3.2 billion loan from the International Monetary Fund (IMF) has received another blow. The Shura Council's Economic Committee rejected the government's policy of borrowing from international institutions, on the grounds that a detailed assessment of the terms involved needs to be carried out. Moreover, the Muslim Brotherhood's (MB) presidential candidate Khairat El-Shater said this week that it was "illogical" for the current interim government to borrow from the IMF. He added that it would be "unfair" for the next government to repay a loan agreed by an outgoing administration. El-Shater said the government could either wait until a new government is formed after the presidential elections, or a new government should be formed earlier. El-Shater seemed to be twisting the government's arm. For weeks now the Freedom and Justice Party (FJP) -- the MB's political arm, which holds a majority in parliament -- has been demanding that the current government under Kamal El-Ganzouri step down. "Uncertainty regarding the IMF loan reflects negatively on investment sentiment, as receiving the loan is considered key to Egypt's economy. The loan not only supports the widening fiscal deficit and the country's dwindling international reserves, but also acts as a vote of confidence in the Egyptian market," according to a note by investment bank CI Capital. Last Thursday, an IMF spokesperson announced that there was no fixed timeline for concluding loan talks with Egypt, and that the process depended on receiving the broad support of the country's political parties. And in a statement issued this week the IMF said their technical team which left this week held "productive discussions with the Egyptian authorities, and met with members of the budget and planning, and economic affairs committees of the People's Assembly. The mission discussed the government's economic programme, the economic situation and prospects, and the role the IMF can play in promoting the recovery of Egypt's economy." The statement further said, "the IMF mission will remain in close contact with the authorities in the coming weeks as they finalise the remaining details of their economic programme, including the 2012/13 budget, and mobilise the required political support for this programme. A financial arrangement to support Egypt's economic programme will be presented to the IMF executive board once this work is completed, and external financing from bilateral donors and other international institutions is confirmed." Abul-Fotouh at AmCham "A CAPITALIST economy that takes into account the social aspect," is what presidential candidate Abdel-Moneim Abul-Fotouh wants for Egypt's economy. This week he told members of the American Chamber of Commerce in Cairo that he appreciates "national capitalism" which is out not only for its own gain, but for the good of its society. Abul-Fotouh pointed out that despite corruption over the past 30 years, national capitalists have played an essential role in the growth of Egypt for decades. Speaking broadly about his economic agenda, Abul-Fotouh stressed that he wants an Egypt that is open for investments, able to make the most of its resources and free from red tape. He clearly stated that he is against making life difficult for businessmen and against the collection of progressive taxes. "Taxes should not exceed 25 to 30 per cent," he said. To him, Egypt's wealth lies not only in its multiple economic resources but in its people, the true potential of whom will only flourish with better education and health. He wants to see 25 per cent of the government budget directed at improving education, compared to the current eight per cent. And he wants 15 per cent to go to better health insurance, rather than the existing 4.5 per cent. "Health and education are not a service. They are the basis for production, and an economic and political renaissance," he said. Dollar certificates available DOLLAR-denominated certificates of deposits have been made available for six months to Egyptians living in several Arab countries. The certificates, issued by the National Bank of Egypt and guaranteed by the government of Egypt, offer a lucrative four per cent interest rate. A road show promoting the certificates took place earlier this week in the six countries where the certificates will be available, namely the United Arab Emirates, Kuwait, Qatar, Bahrain, Oman and Tunisia. The certificates are not yet available in Saudi Arabia because the terms of issue are still being negotiated. The government is hoping to bring in some $1 billion from the first phase of offerings. The certificates are one of the methods the government is using to attract much-needed hard currency. Egypt's foreign reserves fell to $15.1 billion in March, $20 billion less than in January 2011. The measure involving deposits certificates is part of a series of actions the government is taking to secure some $11 billion in external financing. It is also hoping to capitalise on Egyptian expatriates, and attracting an additional $2.5 billion by inviting them to purchase land plots. The overall target is to raise $15 billion over the next four years. It is initially offering 8,000 plots in the cities of Sheikh Zayed and Badr, near Cairo. Narrower fiscal deficit? EGYPT'S minister of finance has said the government is targeting a budget deficit ranging between 8.6 per cent and 8.8 per cent of GDP in fiscal year (FY) 2012/13, down from an expected 9.4 per cent in the current fiscal year. But some believe that this figure may be farfetched. Investment bank CI Capital estimated that the deficit would reach 10.9 per cent in FY2012/13. While acknowledging the Cabinet's intention to reduce the fiscal deficit by rationalising expenses, the bank said exact savings expected were not clear. The minister had issued a decree cutting bonuses for government employees by 10 per cent and governmental operating expenses by three per cent, but did not specify the figure to which these saving will amount. In addition, CI Capital pointed out the fact that the minister has officially asked for special funds support -- and that these funds are excluded from the general budget. According to Bloomberg news agency, Egypt's budget deficit reached LE73.8 billion in the first half of FY 2011/12, compared to LE60.4 billion during the same period the previous year. The widening deficit is attributed to rising subsidies, interest payment, and wages and salaries. Egypt's budget in FY 2010/11 had widened to 9.5 per cent up from 8.1 per cent in FY 2009/10. EFG's profits down by 81 per cent EFG-Hermes, Egypt's largest investment bank, reported a consolidated net profit of LE132.6 million in 2011, a decline of 81.3 per cent compared to the previous year. However, if the one-off capital gains from selling Bank Audi are deducted from the 2010 results, the year on year decline in earnings comes to just 13.7 per cent. The decline in results stemmed mainly from losses of LE77.7 million on the investment bank's front, compared to pretax earnings of LE160.2 million in the previous year. Losses resulted from a 33 per cent drop in fee and commission revenues, as brokerage, asset management and investment banking revenues declined due to muted trading volumes in the company's main markets, especially Egypt. On the commercial bank front, Credit Libanais contributed LE252 million to EFG-Hermes Group bottom line profits. Commenting on the results, CI Capital said that top and bottom line figures reflect the prevailing political and economic situation in the region. "Had it not been for EFG's stake in Credit Libanais, EFG's earnings would have been in the red. This indeed confirms the management's vision of diversification towards a universal bank." EFG-Hermes bought a 65 per cent stake of the Lebanese bank, Credit Libanais, in August 2010. The move came seven months after it sold its minority stake in Bank Audi, after it gave up on acquiring a larger stake in the bank. The bank has put on hold, at least for the remainder of the year, its plan to form an alliance with Qatar's Qinvest, a merger that would give EFG access to the Qinvest's Sharia-complaint business. Djezzy valued at $6.5 billion THE ALGERIAN government advisor on the local network operator, Djezzy, put the communication company's value at $6.5 billion, according to Algerian media quoting of Post and Telecommunications Moussa Bin Hamadi. Algeria is in talks to buy a stake in Djezzy from the Russian company that merged with Orascom Telecom last year. It is still discussing a purchase price for the 51 per cent stake. Hamadi added that negotiations between VimpelCom are still ongoing. The valuation is the latest episode in the Djezzy saga between the Algerian authorities and Orascom Telecom, ignited by violence following a soccer match between Egypt and Algeria in 2009. Last week, Vimplecom said it might seek international arbitration especially after an Algerian court fined Djezzy about $1.3 billion for violating foreign-exchange. Last week OT shares plunged by 9.5 per cent to LE3.44, its largest daily decline since November 2008, on the back of statements by Algerian Finance Minister Karim Djoudi, who said that the negotiations might take months yet before completion. He added there is a "big disparity" between the price the government is willing to pay and that being sought by the seller.
