An end to Tarek Amer’s tenure at Egypt’s central bank

Tarek Amer resigned from his post as head of the Central Bank of Egypt on Wednesday, accepting a new post as presidential advisor, according to televised reports from state-owned news outlets.

Amer’s one-and-a-half terms heading the monetary policy institution have seen the implementation of a controversial policy since the 2016 devaluation of the Egyptian pound that amounted to a partial, rather than a full liberalization against the dollar. With Egypt now in negotiations for a new loan from the International Monetary Fund, reticence toward liberalization is a policy choice that, as sources suggested to Mada Masr, may have resulted in pressure for Amer to step aside.

Egypt’s economy has been dealt a heavy blow by increased instability in global markets in the wake of two years of the pandemic and Russia’s invasion of Ukraine. Foreign capital flight from emerging markets and the cost of debt servicing and maintaining a currency peg drained US$20 billion from the country’s foreign reserve balance over the first six months of 2022, with the central bank implementing a partial devaluation of the pound in March as the government once again seeks financing support from the IMF to help it weather the economic storm.

“It seems clear that Amer stepping aside from [the] monetary policy [role] at this time may serve the course of the Egyptian government’s negotiations with the IMF,” a macroeconomic analyst in a prominent financial group told Mada Masr on condition of anonymity on Wednesday. 

The decision to “distance” Amer from the role, said the macroeconomist, relates to criticisms expressed by the IMF in May regarding the lack of “greater exchange rate variability.”

The international lending body’s preference for a liberalized exchange rate was reported to have caused a dispute within the government itself. Amer refused to liberalize the exchange rate completely, said an Egyptian source in Washington with direct knowledge of the negotiations with the IMF, speaking to Mada Masr earlier this month. The central bank governor feared that such a move could see the value of the Egyptian pound plummet drastically to as low as LE25 against the dollar, the source explained. 

By contrast, Finance Minister Mohamed Maiet, who retained his position in a Cabinet reshuffle affecting 13 ministries over the weekend, reasoned that the loan would bolster trust in the Egyptian government and that the US dollar would remain in the range of LE20 in the case of complete exchange-rate liberalization, the Washington source said.

For Egyptians, however, currency devaluation will mean a further loss of their purchasing power in local markets amid rising global prices.

Rumors of Amer’s resignation were circulated in the press on Saturday, in tandem with news of the reshuffle, though deputy governor of the central bank Gamal Negm denied their veracity to the press.

“Dismissing the rumor at the time, before it became confirmed through the official announcement today, is not surprising,” the macroeconomic analyst said, adding that “having the news leaked before it is officially announced would have meant widespread confusion in the market.”

Regardless, Reuters reported on Wednesday that “Egypt's government bonds suffered a sell-off on the international debt markets after the country's central bank chief unexpectedly resigned.”

The IMF believes that maintaining the currency peg by using reserves of foreign currency to bolster market liquidity exposes the national reserves to repeated impacts that make it less resilient in facing external shocks, such as the outbreak of COVID-19, said the macroeconomic analyst. Amer previously defended his inclination toward utilizing foreign exchange reserves to stabilize the currency value, saying that the intervention of the central bank in the market using foreign exchange reserves is normal. “Foreign reserves are not sacred; they are there to rely on in times of crisis,” Amer reiterated. 

But now that Amer is gone, the same analyst noted, "Egypt has become open to new options and is ready to adopt more flexible policies in terms of the exchange rate in particular."

Despite the divergent view on policy that Amer represented, media sources told Mada Masr that news outlets belonging to the intelligence-owned United Media Services, which dominates the domestic press landscape, were instructed to attribute Amer’s resignation only to a desire for “new blood” in the sector. 

An internal directive, a copy of which was obtained and reviewed by Mada Masr, was circulated among the conglomerate's media platforms, urging all broadcasters and news reporters to report on the change as marking a turn in monetary policy to develop economic performance and deal with global changes and directing them to host economic experts to analyze the event without specific criticism of Amer’s policies. According to the instructions, reference to Amer’s resignation should be reflected and described as a move “to pump new blood” into the financial sector. 

Amid speculation as to who will take over the post at the head of the central bank, a number of government and banking sources told Mada Masr on Wednesday that the leading candidate is Hassan Abdallah, chair of the board of United Media Services and the former chief executive officer of Arab African International Bank.

Other sources suggested that the chair of Banque Misr's board of directors, Mohamed al-Etreby, was also among the names nominated for the position.

The sources, who spoke on condition of anonymity, said that Hala al-Saeed, the current planning minister and director of the central bank’s training institute, was also nominated by a number of government agencies, but the nomination was rejected as Saeed does not come from the banking sector. Another source said the vice chair of Banque Misr’s board, Akef al-Maghraby, was in the running as well.

“A top priority for any new central bank governor,” said the macroeconomic analyst, “will likely be to rebuild the foreign exchange reserves, which is achievable in the short term by securing a loan from the IMF, while a longer-term improvement in the flow of hot money can be supplemented by a decline in the value of the pound, an effective tool in making Egyptian debt securities more attractive.”

Amer has presided over the central bank since 2015, a period that has witnessed major shifts in monetary policy, including the withdrawal of subsidies on fuel and other key goods, in addition to two major inflationary crises — the first in the wake of the November 2016 devaluation of the Egyptian pound and the second, ongoing amid a global supply chain crisis.