Egypt’s economy reform, inflation, growth

Egypt’s central bank Governor Tarek Amer spoke to Bloomberg Television about his country’s efforts to reform the economy, the outlook for growth and inflation, and how ratings companies are lagging behind investors. Below are excerpts of the interview in Dubai on Monday.

On exposure to external funding:

• “We have given the economy financial flexibility, we have different sources” of funding
• “Our exposure to the external world is not that substantial or significant”
• “You cannot lock yourself into what Treasury bills are giving you. This is a big economy, it’s diversified. We bit the bullet and put it on the right track”
• Exports and local industries are “emerging very quickly, and we expect this to continue — so we are happy that the fundamentals are working”

On inflation, interest rates:

• “Monthly inflation has peaked a few months ago at 5 percent, and 3 percent later on. This month, inflation net of the electricity and transport prices is 0.7 percent. So we are in the right direction and we are moving very fast”
• Annual inflation target is 13 percent in the second half of 2018: “We are right on our forecast.” Medium-term aim is 7 percent inflation, which is “important for our financial stability and for our debt capital markets to emerge”
• “The economy has been responding very, very nicely, actually exceeded our expectations”
• “We’ve been aggressive in our monetary policy, and this has been resisted a bit. But we thought that it’s important so we can get our shop fixed very quickly”

On Moody’s unchanged rating:

• “Investors are ahead of Moody’s, and they are ahead of the rating agencies. If the investors are here, that’s all that matters”
• “We have received around $30 billion from foreign investors over the last year so if the rating agencies are lagging behind, I think this is up to them”

On upcoming IMF program review:

• “We’re done in terms of the reforms and the tough decisions, they’re done. The next review is just a regular review, so we don’t expect anything. The program is working very fine”
• “It’s a very large program for the IMF, it’s a home-grown program; it’s our program. We brought in the IMF to bring in discipline” on the fiscal side. “This was a must”
• “We don’t expect any major shocks to the economy, or to prices, over the next year”

On the exchange-rate outlook:

• “We are after stability and predictability for domestic and international investors”
• “We’re having improvement in our main sources of income, like tourism. I think there is no need for concern; we are very comfortable now with the situation. We are out of the ditch”

On tackling Egypt’s informal economy:

• Policies to rein in non-registered economy have yielded deposits of about 500 billion pounds ($28.3 billion) in eight months. “That’s substantial”

On the impact of rising U.S. interest rates:

• “What’s expected has been built in to investors’ decisions, and so far we’ve been seeing consistent flows and stability. So we don’t see this affecting us so much”
• “Over the last period, our domestic economy was the largest generator of foreign exchange.,” so Egypt is now “depending more on our domestic flows”
• A U.S. rate increase will not have “much effect on the domestic space, and we already have extra reserves in terms of any changes in the sentiment or appetite of investors”
• “We’re very comfortable, we have cushions, we have buffers”