Man of negative records in Egypt!

The Egyptian Banking Law stipulates that the Governor of the Central Bank shall be appointed for a period of 4 years, renewable once. But the current governor, Hassan Abdullah, is exceptional, as he was appointed as chargé d'affaires in August 2022 under the pretext of parliamentary approval. The decision to confirm him in office was supposed to be issued after the return of parliament, especially since he participated with the finance minister in the negotiations with the International Monetary Fund, which led to a new agreement with the Fund in December 2022.

However, a whole year passed without the issuance of the appointment decision, and then the decision of the President of the Republic a few days ago to extend it for one year, in a step that did not happen before with his predecessors from the governors, to raise concern and questions in the business community about the reasons for this, without any explanation from the Egyptian authorities.

Indices

In this context, we can call Governor Hassan Abdullah the "man of negative records" in his one-year period, Egypt witnessed:

• The highest interest rate by the MPC since its inception, currently at 19.25%.
• The central bank's highest core inflation rate since its announcement began, at 40.7% last month, up from 15.6% in the month before he took office, the highest since 1986.
• The highest figure for the dollar deficit in the banking system, in fact, this governor took office in light of the problem of a severe shortage of foreign currency, as the deficit in June last year reached $ 19.7 billion, and after a year of taking office, he did not succeed in dealing with this problem, but the dollar deficit increased to $ 27.099 billion in June of this year.
• Negative interest: The interest rate is supposed to be suitable to make a profit for depositors and facilitate borrowing for producers, and it is also supposed to be higher than the inflation rate for the depositor to achieve a net profit, although the declared interest rate on Central Bank deposits has risen 4 times since the current governor took office from 11.25% to 19.25% currently.
  However, since February 2022, the real interest rate, the difference between the declared interest rate and the inflation rate, has been negative. This negative spread was about 4.35% in the month before the governor's tenure, and then increased a year after he took office to a record 22.5% last month. This makes many avoid Egyptian bank deposits and debt instruments because their real interest rate is negative.
• Largest figure for external debt: External debt increased by about $ 9.65 billion in 8 months, reaching $ 165.36 billion under the current governor, a historic record. He benefited from these debts to raise the value of Egyptian foreign exchange reserves by about $ 1.736 billion, to reach $ 34.9 billion, yet he has not yet succeeded in reaching the same amount of reserves that his predecessor reached in 2020, which is $ 45.5 billion, nor under former President Hosni Mubarak, who left reserves exceeding $ 35 billion.
• The largest figure for domestic public debt: The balances of treasury bills in the Egyptian pound increased by about 369 billion pounds in 8 months, and this is one of the internal public debt instruments, and interest rate increases contribute to increasing the cost of interest in the government budget, thus increasing the budget deficit, which pushes for more borrowing through the issuance of additional treasury bills and bonds.
• The lowest official exchange rate for the pound: The governor devalued the pound twice during his months in office, falling from 19.15 pounds to the dollar before taking office to 30.90 pounds to the dollar last March, and then the bank fixed the exchange rate at this historically highest figure. However, the parallel exchange market still exists, before and after the current portfolio, due to the decline in the value of exports and workers' remittances.
• Continued losses of the Central Bank: The governor was unable to stop the deficit in the CBE's budget, despite the suspension of low-interest lending initiatives and the decision to raise the mandatory reserve ratio for bank deposits with the Central Bank from 14 to 18%, which provided him with additional resources at no cost. The CBE budget deficit reached 92.7 billion pounds in 11 months, in addition to losses of 206 billion pounds. The bank's equity shrank to just £20 million, a very small figure, of course. According to the Banking Act, the Ministry of Finance intervenes in this case to prevent the central bank's property rights from becoming negative.

Portfolio Achievements

To be fair, Hassan Abdullah's tenure was not without some achievements, as he amended the provisions of gold export control to ensure the supply of revenues, increased daily and monthly limits for financial transactions through the instant payment network, allowed mothers to open bank accounts in the name of their minor children, and issued rules for licensing digital banks.

However, there are decisions that have not been effective for a long time, such as the decision to cancel the moratorium on handling of collection documents where import reduction measures have weakened the effectiveness of this decision. His decision on licensing and supervision rules for exchange companies has also faced criticism for its unfavourable strictness.

Also, the implementation of his promise to launch a dollar index to limit the use of the US currency, and his promise to support the private sector, which faces a shortage of raw materials and production requirements as a result of import restrictions, and the accumulation of importers' requests in banks continued, and then the most prominent promise that was not fulfilled, which was to achieve flexibility for the exchange rate.

It is also fair to note that the period following its agreement with the IMF was devoid of the Gulf and international support that Egypt enjoyed during the 2016 reform program, as this period was accompanied by the issuance of international Egyptian bonds, the influx of hot capital, and the improvement of Egypt's credit rating. All of these factors were not available to Governor Hassan Abdullah, making his task more difficult.