An Egyptian woman exits an exchange house in Cairo. The central bank has so far been able to manage the devaluation in an orderly way, with the currency sliding in small daily increments that have been shrinking gradually.

Reuters/Cairo


Financial aid from the Gulf is succeeding in buying Egypt’s government time as it battles to prevent a currency collapse, though Cairo may not be able to afford much more delay in securing a loan from the International Monetary Fund.
An agreement with the IMF on the $4.8bn facility was expected to come last month, but talks were postponed because of political instability in Egypt. The delay was a trigger for a plunge in the Egyptian pound to record lows.
Officially traded between banks at 6.6350 to the US dollar on Tuesday, the pound has lost about 7% of its value in under a month, and now stands 12% weaker than it was before the early 2011 uprising against Hosni Mubarak.
But in some ways, the currency picture is positive - surprisingly so to some investors who predicted an uncontrolled slide of the exchange rate when it began its recent depreciation at the end of December.
Downward pressure continues on the pound, which is widely believed to be overvalued. But the central bank has so far been able to manage the devaluation in an orderly way, with the currency sliding in small daily increments that have been shrinking gradually.
Analysts say supplies of hard currency have not dried up in the market, despite authorities’ steps to limit the drop in Egypt’s foreign reserves, such as a ban on travellers carrying over $10,000 of foreign currency into or out of the country.
While licensed exchange houses are quoting weaker rates for the pound than banks do, the gap is moderate. A big, unlicensed black market in dollars does not appear to have developed, though one became a feature of business life during Egypt’s last economic crisis about a decade ago.
Meanwhile, Treasury bill yields have not soared, though they could be expected to do so if banks foresaw financial disaster.
“One of the key things has been aid that Qatar is providing,” said William Jackson, emerging markets economist at London’s Capital Economics, referring to about $5bn in aid which Qatar has provided Egypt since Mubarak’s departure. Saudi Arabia has provided $4bn more.
The money has prevented a steeper fall of the central bank’s foreign reserves, which at about $15.5bn have more than halved since the uprising and, by the central bank’s own admission, are at critically low levels.
Jackson said the foreign money, which has come in the form of loans, deposits and grants, was a “double-edged sword”; it bought time to manage the currency depreciation smoothly but could hurt a future economic recovery if it tempted President Mohamed Mursi’s government to avoid cutting subsidies and making other economic reforms needed to secure an IMF deal.
Echoing the views of other economists, he said the IMF loan was important not just because it would replenish reserves but because it would be seen by investors as a stamp of approval for Egypt’s economic policies.
For now, many investors seem willing to give Egypt the benefit of the doubt. The average yield on 182 T-day bills issued by the central bank on Tuesday was 13.725%, down from 13.970% a week earlier and 14.104% two weeks ago. Last August, it was well above 15.0%.
“There is no shortage of dollars,” said one teller at a foreign exchange house in central Cairo. He added that he was offering the dollar for 7.0 Egyptian pounds - a rate about 5% weaker than the rates which the central bank was permitting commercial banks to trade.
Some Egyptians are still converting their savings into dollars because of fears of a currency collapse.
“I am buying dollars with my savings to be on the safe side,” 36-year-old Hassan Anis said while visiting one Cairo exchange house, where the dollar was being offered at 6.95. “I have come here because it is the best rate I could find.”
But a senior commercial banker, who asked not to be named because of the sensitivity of the issue, said there was no sign of a major shortage of dollars in the market - though an order for a large amount might not be filled immediately.
“It depends whether you want the money now or can wait till tomorrow and how much you want. It seems to be patchy,” he said. “My sense is there is not a critical shortage and the difference between official and black market rates is not massive.”
In response to the decline in its reserves, the central bank began at the end of last month to hold regular auctions of hard currency, usually about $75mn each time, and set a cut-off price for the pound. At each sale that price has steadily weakened, and it was set at 6.6025 on Tuesday.
On the interbank market, the pound is allowed to trade 0.5% on either side of the average auction price. After each auction so far, it has swiftly slipped to the weakest level.
How much further it falls may depend on how swiftly Egypt returns to talks with the IMF. No date has yet been set.
In the meantime, further aid from Egypt’s friends may keep foreign exchange reserves at minimally sufficient levels. Turkey transferred $500mn to Egypt earlier this month, while the finance ministry may offer more issues of dollar-denominated, one-year bills to sop up some of the private sector’s hard currency holdings.



Turkey unveils plan for ‘biggest airport in world’

Reuters
Ankara


Turkey plans to build what it said would be the largest airport in the world in Istanbul, eventually able to handle 150mn passengers per year, in a project seen costing more than €7bn ($9.3bn).
Transport Minister Binali Yildirim said yesterday the deadline for bids to build the airport, which will be Istanbul’s third and have a total of six runways, would be May 3. It was not clear when the contract would be awarded.
The airport will add vital capacity in the region and enhance the role of Istanbul, the hub for flag carrier Turkish Airlines.
“At full capacity the new airport will be the largest in the world in terms of passengers,” Yildirim told a news conference in Ankara. “We calculate the whole project will cost more than €7bn excluding financing costs.”
Turkey’s economy, the fastest-growing in Europe, has advanced rapidly over the past decade under the leadership of Prime Minister Tayyip Erdogan and become a major trading partner with Europe and the Middle East.
The tender will be for a 25-year lease in a four-stage project, with annual capacity of 90mn passengers planned for the first stage, Yildirim said.
“The final annual capacity of the airport will be 150mn. The first stage will be operational in 2017,” he said.
The tender advertisement will be published in Turkey’s Official Gazette today.
Prime Minister Erdogan said on Tuesday the tender would be launched today with the first stage of construction to be completed in 3-4 years.
Turkish airport operator and builder TAV and construction company Limak are among the companies that have expressed interest in bidding for the contract.
TAV also has the operating rights for Istanbul’s Ataturk airport, the country’s largest, until 2021. It said the Turkish airports authority would compensate it for any losses if the third airport opened while it was still running Ataturk.