Back from the brink, Egypt begins to see benefits of reform
In his two years as head of the Central Bank of Egypt (CBE), Tarek Amer has been one of the main drivers of a reform programme that has transformed the country’s economic outlook. When the former Citi banker took over as governor in November 2015, Egypt was on the verge of a balance of payments crisis. Foreign exchange reserves were plummeting as policymakers struggled to defend the Egyptian pound’s peg to the dollar in the face of dwindling tourism revenues and almost non-existent foreign direct investment.
Amer’s appointment marked a turning point. In his first year in office the new governor won plaudits for pushing through an initial 14% devaluation of the pound, tightening monetary policy and lifting onerous capital controls.
This presaged the full liberalisation of Egypt’s FX regime in November 2016 — a move that Amer describes as the pinnacle of the government’s reform programme. “This bold move was planned for meticulously, down to the smallest detail, and its success was the catalyst that jumpstarted the economy,” he says.
The introduction of a floating exchange rate and an inflation targeting regime was followed a week later by the approval of a new $12bn three year extended fund facility (EFF) for Egypt by the IMF’s board. Amer, who was a key architect of the IMF programme, says it was essential for the country.
“It was a clear demonstration of Egypt’s steadfast commitment to reforming, to progressing, to unleashing the vast potential of our economy,” he says. “Acquiring the IMF’s support and stamp of approval was a vote of confidence to the international community.”
Investor enthusiasm
The response from both foreign and domestic investors was prompt and impressive. Since November, Egypt’s banks have received more than $47bn in hard currency inflows. This in turn was reflected in the balance of payments. In the year to end-June, the current account deficit fell by 21.5% to just $15.6bn.
The return of investor confidence also allowed Egypt to return to the Eurobond market after an 18-month absence. A record $4bn deal received a warm welcome from global fund managers in January and a $3bn follow-up in May was equally successful.
Amer has also proved adept at managing the aftershocks of currency liberalisation. The CBE tightened rates by 700bp between November and July to curb surging inflation while at the same time working to minimise market disruption through timely and transparent disclosure.
“We have undertaken definitive measures for the first time in the CBE’s history to activate the expectations channel of the monetary policy transmission mechanism,” says Amer.
Under his leadership, the CBE has also played a key role in encouraging Egypt’s banks to fund the real economy. “We have managed to buttress SMEs by providing them with more accessible, attainable funding in order to enhance their businesses and power the economy forward,” says Amer. “We have also progressed significantly in our ambitious targets for financial inclusion.”