CAIRO – Egypt’s benchmark stock index extended its decline for a second consecutive day and airport officials reported a sharp drop Monday in international passenger arrivals as deadly clashes in the capital cast fresh doubts about the country’s political stability days before pivotal parliamentary elections.
The Egyptian Exchange’s EGX30 index closed 3.99 per cent weaker, at 3,862 points, according to the exchange’s Web site. The drop surpassed the previous day’s 2.4 per cent decline sparked by clashes between security forces and protesters in Cairo’s iconic Tahrir Square, and pushed the index’s year-to-date losses to almost 46 per cent.
The protesters are demanding that the ruling military council announce a date for transition to a civilian government. At least 24 people have been killed in the clashes since Saturday across Egypt, the overwhelming majority in Cairo, according to a morgue official who spoke on condition of anonymity because he was not authorized to brief the media.
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Meanwhile, the Egyptian pound flirted near the 6 pounds to the U.S. dollar mark, reaching levels largely unseen since the height of the Jan. 25 uprising that ousted former President Hosni Mubarak. The pound, which had hit about 5.99 pounds to the dollar, pulled back to around 5.973 pounds to the dollar later in the day. Also, Egypt’s 5-year credit default swaps, the cost of insuring the country’s debt, stood at 525 basis points compared to 466 basis points on Nov. 18, according to data from financial information provider Markit.
The depreciation pressures, coupled with the soaring debt costs, underscored the country’s economic crunch which has been exacerbated by a nearly 40 per cent erosion in net international reserves since December.
“Egypt has a massive external financing risk over the next year, and these political events are making matters worse,” said Said Hirsh, Mideast economist with Capital Economics in London. “Any kind of political uncertainty is making the situation worse.”
The uprising that ousted Mubarak in mid-February sparked a tide of optimism in the country, with millions expecting that nearly three-decades of authoritarian rule best defined by a system of crony capitalism and outright nepotism would be replaced by a transparent, democratic system that offered them at least the opportunity to succeed.
But those expectations have proven far greater than the reality on the ground as mass protests battered the economy, with key foreign revenue sources tourism and foreign investment taking a beating since the start of the year.
Net international reserves were down to $22 billion by the end of October, from $36 billion by the end of last year, according to Central Bank of Egypt figures. At least some of that has gone to supporting the Egyptian currency.
The unrest comes days before parliamentary elections – the first since Mubarak’s ouster. The vote is seen as a milestone in Egypt’s transition to a democratic system, but the violence has raised questions about whether the various parties will pull out.
Reflecting the impact of the unrest, airport officials in Cairo said at least two airlines cancelled flights from Italy and Syria on Monday because of the unrest in the capital and that the number of arrivals from European nations plunged between 30 to 50 per cent. The officials spoke on condition of anonymity because they were not authorized to speak with the media.
The cancellations and the drop in arrivals was reminiscent of the mass departures of foreigners from Egypt in the first days of the uprising – an exodus that heralded the start of the decline of the country’s vital tourism sector for the year.
The IMF is projecting Egypt’s economic growth to come in at an anemic 1.2 per cent this year compared to about 5 per cent in 2010.
With key revenue sources hammered the interim government has had to rely on foreign aid, as well as selling treasury bills and bonds to raise money. But yields on two billion, 266-day, treasury bills auctioned on Sunday surged to 14.7 per cent – significantly higher than the 1.5 per cent interest rate the IMF had requested on a roughly $3 billion loan it offered the government over the summer.
Egyptian officials turned down that offer, but are now re-evaluating it given the climbing yields they are forced to pay to attract interest in their securities.
“The problem is that this is an interim government, and it’s questionable how much power it has with the military council making the decision,” said Hirsh. “There’s basically no clear economic policy direction on the part of the interim government.”
The decision to turn down the IMF loan and turn to T-bills to raise money at higher yields reflects “this sort of contradiction in policy,” he said. “It’s doesn’t make any sense.”