(Bloomberg) — Egypt reappointed Hassan Abdalla as acting central bank governor but without giving him a full four-year term, leaving the reins of monetary policy in the hands of a veteran financier who’s overseen several rounds of devaluation and likely needs to let the pound go even weaker.
Abdalla, 63, gets a one-year term extension, according to an announcement in the Official Gazette, after taking over in an acting capacity following the surprise resignation of Tarek Amer in August 2022. Abdalla previously held senior positions at the Arab African International Bank and is also the founder of Panther Associates, a boutique financial advisory firm.
The short extension creates some uncertainty for investors after Abdalla presided over policies that helped Egypt secure a $3 billion loan from the International Monetary Fund. But his approach also left the market on edge as the country grapples with record inflation amid the worst foreign-currency crunch in years.
Moody’s Investors Service said last week it’s continuing a review for a downgrade of Egypt’s non-investment grade rating — which began in May — as it weighs progress on the government’s reform agenda against factors including evidence of a further weakening in external liquidity.
Abdalla represented change from his predecessor, who long supported a stable pound. But while the new governor moved to allow the currency to weaken by more than a third against the dollar during his time in the job, his stewardship has so far fallen short of delivering on promises to let the market determine the exchange rate.
Abdalla inherited many challenges as the North African nation that’s one of the world’s largest wheat buyers confronted a spiraling economic crisis in the wake of Russia’s invasion of Ukraine. Pressures have again been intensifying on the pound as Egypt struggles to secure foreign direct investments and inflows into its local debt market.
Analysts widely expect another devaluation, but not before authorities build up sufficient foreign-exchange buffers to manage the transition.
Under Abdalla, the central bank raised interest rates sharply three times, taking them past their peak during Egypt’s 2016-2017 currency crisis. Still, the 19.25% benchmark remains more than 17 percentage points below inflation.
Read More: Egypt’s Central Banker Explains Policy in Rare Public Appearance
While Abdalla suggested in a rare public speech in April that higher borrowing costs can do little to contain inflation caused by supply issues, the IMF has said authorities should “use the monetary policy instruments” at their disposal — especially interest rates — to cool prices.
The new governor enjoys stronger backing from the business community than his predecessor, who led the central bank for about seven years and championed policies that propped up the pound.
The challenge for Abdalla now is to win over investors and the IMF, which delayed the first review of the country’s rescue program that was expected to be completed in March. It’s been waiting for authorities to make good on reforms including genuine currency flexibility.
Abdalla helped make headway with the IMF after his initial appointment. Meeting some IMF demands, the central bank canceled some subsidized lending programs and moved others to the Finance Ministry, steps that facilitated the approval of Egypt’s loan.
But the pound has been kept stable for months, maintaining a discrepancy with the local black market where it’s available at a weaker level than at banks.
Concerns about inflation and social stability in the country of over 104 million people may be putting constraints on policy. Egypt remains mindful of risks since a cost-of-living crisis helped trigger the Arab Spring uprisings a little over a decade ago.
Read More: How to Know Where Egypt’s Once-in-Decade Crisis Is Heading
Abdalla’s urgent priority is still to secure enough foreign exchange to ease a debilitating hard-currency crunch and clear a backlog of dollar requests from importers and other companies.
Shortages of consumer goods started to ease during Abdalla’s tenure as he scaled back measures that kept some commodities stuck at Egypt’s ports for months and imposed controls on imports that made scarcity worse.
Read More: Egypt Central Bank Eases Currency Rules to Clear Import Backlog
But for now, not all businesses can access hard currency from banks, partly due to the hoarding of dollars by companies and people worried about a potential new devaluation.
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روابط ذات صلة:
رسميا.. الجريدة الرسمية تنشر قرار تجديد تعيين حسن عبدالله قائما بأعمال محافظ البنك المركزي
عاجل: تجديد تعيين حسن عبد الله قائما بأعمال محافظ البنك المركزي لمدة عام
