EconSource: Egypt Strengthens Currency Amid Disruptive Dollar Shortage

The Central Bank of Egypt strengthened the pound on Wednesday for the first time since 2013, injecting dollars into a banking system suffering from an acute foreign exchange shortage and raising expectations of a radical shift in monetary policy. The Central Bank raised the pound’s official value by 0.20 pounds to 7.7301 to the dollar, surprising bankers who had been expecting a depreciation to ease the country’s currency crisis. The move drew conflicting reactions from the market, with some criticizing it as dangerous and others predicting that the bank was laying the ground for a major devaluation, a loosening of the peg or a full flotation. Meanwhile, Egypt’s Central Bank Governor Hisham Ramez said on Wednesday he had appointed Gamal Negm as caretaker governor. Ramez submitted his resignation on October 21. Tarek Amer was appointed to permanently take over the bank starting on November 27. [Reuters, AP, 11/11/2015]

Negotiations over $3 billion World Bank loan to Egypt move to Washington
Negotiations between the Egyptian government and the World Bank over a $3 billion loan have moved from Cairo to Washington, DC. Minister of International Cooperation Sahar Nasr visited Washington on Tuesday for negotiations. She said that she discussed Egypt’s economic and social reform efforts and measures taken to improve the investment climate. Nasr met with officials including World Bank Vice President for the Middle East and North Africa Hafez Ghanem, who confirmed the Bank’s readiness to cooperate with Egypt. Discussions focused on efforts to reduce poverty, create jobs, complete infrastructure projects, and reduce social inequities. According to Nasr, the loan will be used to fund Egyptian national projects. [AMAY, 11/11/2015]

Iraq agrees to IMF monitoring program as precondition to loan
Iraqi authorities agreed on Tuesday to an International Monetary Fund (IMF) monitoring program as the basis for a possible funding program in 2016. IMF Mission Chief Christian Josz said the program would rein in spending and reduce Iraq’s budget deficit, which is expected to approach 12 percent of economic activity next year. “[The move] will allow the Iraqi authorities to build a track record for a possible Fund financing arrangement.” A senior IMF official said last month the new loan would be a “multiple” of the $1.24 billion in emergency funding that the IMF agreed to provide in July. Josz said the IMF expects Iraq’s gross domestic product (GDP) to grow by 1.5 percent this year and the current account deficit to expand to 7 percent of GDP. He predicted that foreign exchange reserves would decline, but remain high enough to cover nine months of imports through the end of the year. [Reuters, 11/11/2015]

Kuwait may issue dollar or dinar bonds; financial regulator opens door for more sukuk issues
Kuwait may issue US dollar or dinar denominated bonds to financial institutions to help cover a fiscal deficit caused by low oil prices, Finance Minister Anas al-Saleh said Thursday. Saleh did not specify when the issue might occur or whether it would feature conventional or Islamic bonds. Meanwhile, Kuwait’s Capital Market Authority (CMA) released rules covering issuance of Islamic bonds in a move that could facilitate sales of sukuk by both the government and corporations. The rules aim to provide a legal basis for issues and outline conditions that sukuk must meet to be tradeable. [Reuters, 11/12/2015]

Turkish wage hike plan sets alarm bells ringing over economy
Turkey’s government is set to increase the minimum wage by around 30 percent in January. However, unless the government introduces strong countermeasures to soften the impact of such a steep rise on an uncompetitive and inflation-ridden economy, it also risks setting itself on a collision course with domestic employers and international investors. According to official data, the hike will be the biggest since 2003 and entail higher wages for around one-fifth of Turkey’s workforce. Economists argue that such an increase in the minimum wage will create a negative supply shock, leading to higher costs for employers, entrenched inflation inertia, and increased unemployment. Some in the private sector warn of ballooning costs and job cuts, and say that they government should pay for the wage hike. Finance Minister Mehmet Simsek has said, “There may be some incentives … but the majority of the burden from the wage increase will be on the private sector’s shoulders.” [Reuters, 11/12/2015]

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