Economy in a week: Amid political (un)ease, Fitch upgrades to stable

Fitch Ratings has upgraded Egypt's credit rating to stable based on the relative improvement in the country's political situation and availability of foreign currency. Meanwhile, after the finance minister announced a decrease in this year’s subsidy budget, the government has been advancing its oil and gas exploration deals to assist repayment of its debt to international oil companies.

While it may seem that Egypt is anything but, the global Fitch Ratings has upped Egypt's credit ratings from negative to stable. However, it maintained its long-term foreign and local currency sovereign credit ratings at B-, Fitch said in a statement released on Friday.

Fitch attributed its decision to a relative improvement in the political situation, an increased availability of foreign currency and financial aid from Gulf countries, all of which have alleviated pressure on the government budget, thus improving Egypt's economic outlook while boosting business confidence.

"The political scene has been calmed through a tough crackdown on the Muslim Brotherhood and restrictions on protests ... Nevertheless, serious political tensions remain. Society is deeply polarized, political parties are weak and the security situation in North Sinai has worsened,” the statement said.

The last credit rating downgrade occurred in July 2013 following the unrest sparked by the military’s ouster of former President Mohamed Morsi amid anti-government protests. Fitch said "heightened uncertainty" and "inflamed political tensions" were jeopardizing the economy at the time, deepening international concern for the country's stability and political future.

This is the first time in three years that Fitch has upgraded Egypt's economic outlook.

Finance Minister Ahmed Galal said that the improvement in the international ratings reflects Egypt's positive economic future.

Fitch forecasts that Egypt’s real gross domestic product (GDP) should pick up to 3.2 percent in FY2014 and 3.8 percent in FY2015, up from 2.1 percent in FY2013, though it projects these figures would still be "insufficient to prevent unemployment from rising."

Analysts believe that the key to obtaining a positive credit rating is improving political stability and progressing on fiscal and structural reforms that would deliver material reduction in the budget deficit.

Finance Ministry announces decreased subsidy budget for 2014

LE100 billion has been allocated to the energy subsidies budget for FY2014, a 20 percent decrease from last year.  

Nagy al-Ashkary, head of the Finance Ministry’s central administration, said there would not be any removal or reallocation of energy subsidies, or quantified limitations on subsidized use for the current fiscal year even after fully implementing the smart card system.

The ministry expects the card system to save up to LE36 billion from the energy products budget.

The smart card system would ensure subsidies are delivered to the right beneficiaries and limit energy smuggling, said Ashkar. The black market delivers 30 percent of local energy distribution, according to official estimates.

Smart cards have been issued for 850,000 vehicles out of a total 6 million licensed vehicles.

Digging more wells

While the interim government rations its energy use, it has been expediting oil and gas exploration deals, approving eight oil and gas exploration deals worth US$2.1 billion.

Seven of the agreements are between the Egyptian Natural Gas Holding Company (EGAS) and Emirati, Italian, English, Irish and Canadian companies. The new agreements include exploration for oil and gas in the Mediterranean, the Nile Delta and Gulf of Suez.

EGAS has proposed drilling a minimum of 17 new wells in these areas for exploration purposes during a three-year search period.

Ministry of Petroleum spokesperson Hamdy Abdel Aziz said the new agreements are an indication of the oil companies' commitment to investing in Egypt.

By the end of 2013 interim President Adly Mansour had signed deals worth US$713 million in this sector, Abdel Aziz said in a phone interview on state television.

Middle East funds bullish on Egypt equities

A recent survey published by Reuters indicated that 47 percent of a sample of 15 Middle East based fund managers said they expected to raise equity allocations to Egypt within the next three months, up from 33 percent in November's survey.

The other managers expected to keep their allocations steady, while none expected to cut their exposure to Egypt, according to the survey.

Most fund managers chose to focus on the billions of dollars’ worth of aid coming in from the Gulf, and also assumed the public security situation would not deteriorate any further.

The main stock market index EGX30 concluded 2013 with 24 percent growth, according to a report from the Egyptian Stock Exchange.

Of the six major Middle Eastern stock markets covered by the survey, fund managers were most bullish about Egypt.

Maximum wage implemented in January

Prime Minister Hazem al-Beblawi met on Sunday with the ministers of finance and administrative development to discuss the operational procedures for implementing maximum wage.

A maximum wage would be implemented this month for all state administration and local administration employees, Beblawi said during the meeting. The ceiling also applies to all public economic, service and national bodies.

A November 13 2013 decree stipulated that maximum wage should be set at 35 times the minimum wage, and not exceed LE42,000.

Banks and petroleum companies will be excluded from the application of maximum wage, and would be included in a second round that is currently being studied by the government, according to Hany Mahmoud, minister of administrative development.

The government will apply the ruling to 8,500 employees, and the Finance Ministry will oversee its implementation.

Finance Ministry targets over LE200 billion in treasury bills for first quarter of 2014

According to the Finance Ministry’s treasury bills offering schedule, officials decided to offer t-bills worth LE64 billion in January, LE70 billion in February and LE69 billion in March.

The ministry plans to offer LE8 billion in t-bills with a maturity of 91 days, LE10 billion for 182 days, LE12.5 billion for 273 days and LE15 billion for 364 days, alongside bonds with a total value of LE18.5 billion.

On Thursday, the ministry offered t-bills worth LE6 billion. One hundred eighty-one day t-bills received LE2.5 billion and were covered 1.91 times with an average return of 10.874 percent, while 364-day t-bills received LE3.5 billion at an average rate of 11.126 percent.