Damaging the wealth of individuals and an increase in prices ... the renewal of the Egyptian Central Bank governor, despite the failures

Abdul Hafiz Al-Sawy

The House of Representatives in Egypt endorsed President Abdel Fattah El-Sisi’s decision to renew Tarek Amer’s mandate as governor of the Central Bank, which is the only body responsible for setting monetary policy and monitoring and directing its economic implications.

Although it appears to be a technically complex issue, the Egyptian citizen directly felt its impact with the decisions to liberalize the exchange rate of the pound, as people's fortunes decreased by 50%, and prices jumped at crazy rates until the inflation rate reached 34% in July 2017.

The fatal negativity is embodied in the “Economic Reform Program in Egypt” of the International Monetary Fund agreement in November 2019, in that the central bank, through the monetary policy mechanisms (interest rate, inflation rate, and exchange rate) led economic policy without coordination among its components, which created Negative effects on investment and commodity exports, by extension, also deepened the recession that still afflicts the Egyptian economy.

Bringing hot money
In the context of Amer seeking to increase the supply of foreign exchange to achieve stability in the exchange rate, he resorted to the mechanism of investing foreigners in government debt through local government debt and bonds, which is an old mechanism used by the former central bank governor Farouk El-Okda during the era of Mubarak, and was one of the tools of pressure On the exchange rate of the pound after the revolution of January 25, 2011 due to the exit of these funds from the Egyptian market.

Usually, these funds do not come to an advantage in the economy that attracts them, but they are looking for a high interest rate, and their investments will be in the short term so that they can exit as soon as possible if they find a higher interest rate in another market.

In the case of Egypt, foreign investment in treasury bills was only 532 million Egyptian pounds (33 million dollars) in November 2016, and in November 2017 it jumped to 330 billion pounds for two things, the first being the devaluation of the Egyptian pound as a result of the exchange rate liberalization policy, The second is the high interest rate on Egyptian treasury bills, which approached 20% at that time, and from here on, foreign investors benefit from both cases.

The seriousness of this policy is that it makes the exchange rate vulnerable to fluctuations in the external hand, they are foreign investors, and not the result of subjective factors that can be managed by the central bank, and the second thing is that a large part of these funds is like money laundering, it comes in the form of contributions to foreign investment funds, whether In Europe or in the "offshore" areas.

Thus, what was achieved from the improvement of the value of the pound in 2019 was not the result of self-improvement as much as it was once the fruit of hot money, which the government cost high interest rates incurred by the state budget.

Harm the wealth of individuals
The policy of reducing the exchange rate at the end of 2016 caused a damage to the wealth of individuals, especially monetary savings in the Egyptian pound. .

For example, real estate owners, especially companies that invest in this sector, tried to offset their losses by raising the price of real estate, but they could not raise prices by 50%, which created a state of stagnation in this sector that is still suffering from it until now.

Cons of raising interest rates
The monetary policy adopted by the Central Bank in Amer first state tended to raise the interest rate until it approached the ceiling of 20% annually, to achieve several results, firstly controlling inflation rates by withdrawing liquidity from the market to reduce the severity of demand, as well as encouraging savers not to withdraw their deposits after reducing The value of the Egyptian pound.

However, this policy crippled the investment sector, on the one hand, as the cost of financing increased along with the high cost of energy and production requirements. On the other hand, it raised the cost of government borrowing from the Egyptian apparatus.

Debt - dependent reserve
Since November 2016, the Central Bank of Egypt is not late for the first day of every month to announce an improvement in foreign exchange reserves, which amounted to $ 45.2 billion at the end of October 2019, in contrast to what the Central Bank is doing in relation to the announcement of domestic debt Or foreign, where it usually comes six months late, and at best three months, showing what it is not true.

And the follower of all the debts obtained by Egypt, especially those that came through the international bond market, believes that an important part of it is used to support the foreign exchange reserves, and the same thing was repeated in the loans and deposits that Gulf countries provided to Egypt after the military coup.

Inflation rate
As a result of monetary policies that targeted the devaluation of the Egyptian pound and raising the interest rate, inflation rates rose unprecedentedly, reaching 34% in July 2017, and then continued to increase in the remainder of the year 2017, then tended to decrease until it reached 4.7% in September 2019 .

This significant decline was not the result of the improvement of the productive base in Egypt, but rather the decrease in demand due to the deterioration of individual incomes and the increase in recession rates, as well as the manipulation of the Central Agency for Public Mobilization and Statistics by changing the base year upon which inflation rates are evaluated.

The error persists
Tareq Amer’s monetary policy that the Central Bank of Egypt followed was not effective to get the Egyptian economy out of its crisis, but it took it upon itself to implement the agenda of the International Monetary Fund, so the most important concern was to achieve an improvement in financial and monetary indicators regardless of the economic and social cost that negatively affects society The Egyptian.

Perhaps what was announced recently by Egypt arranging its files to enter new negotiations with the IMF for a new agreement by the end of 2019 is considered evidence of the ineffectiveness of the monetary policy of the Central Bank of Egypt, whose most important negative features were also lack of coordination with other economic policy components.

After three lean years on Egyptian society, Tareq Amer's policies did not improve the income of individuals, rather increased them poorer, and did not lead to Egypt's dispensing from abroad, but the bill of imports.