Shawshank Redemption & Hot Money!

The Shawshank Redemption, the most favorable movie in the 90's, produced in 1994, the movie was put on a Pedestal, and was untouched since then, the moral of the movie is to say Farwell to something that caused agony for a long time, to see and gauge the reverberation of this goodbye. The irony is the analogy with the current economical situation in Egypt, bear with me in the next lines.....!

Welcome back for our newsletter, after a period of stoppage, coming to you from Cairo, Egypt.

In the Infographic to the left, Goldman Sachs (GS), the international investment bank and research house predicted a planned increase in the US interest rates to reach 3.5% by the end of 2022, thus to curb the inflation rates in the US, currently in the plateau of 8.5% to reach only 2% on 2023.

The same prediction said, another 3 consecutive increases in September, November and December in the ranges of 5 to 75 basis points. These aggressive moves would add a blistering shocks to the economies of the emerging markets including Egypt.

But, what lies under the hood? why this is too detrimental to Egypt in Precise, the answer is that, the Egyptian Government since the year 2013, had been indulged in the "Hot Money" Game, and the game was just hotter than even the name, simply for the last eight years, the easiest way to fuel the US$ federal reserve which marked US$ 23 Bn. at that time was the Hot Money, US dollars come in and out in a year or slightly more.

The dice rolled and the Russian Roulette wins, and the amount of hot money sloped upwards from US$ 11Bn. on 2013 to reach US$ 33Bn. on 2022, just in the first quarter. While, the table had flipped after the outbreak of the Ukrainian crises on February 24, 2022, the hot money buzzed off in an overnight take off amounting to US$ 20Bn, leaving the federal reserve and the exchange in a wispy and vulnerable positions.

The corresponding fact is too brusque in construing the situation, as per Mr. Mohamed Maait, the Minister of Finance, "Every 1% increase in the interest rates, it costs the public budget a sum of EGP 30Bn.", as a service for the debt. Accordingly, the public finance would not bear the "American Beauty" more and more, only for the sake of attracting more Hot Money, thus it is the "Hot Money Redemption", Farwell to the chronic agony for 7-8 years of interest trade on Treasury Bills in specific and on Egyptian Pound on larger scale.

The Hot Money was swiftly switched with Gulf Investments amounted to US$ 12Bn. led by the US$ 1.8Bn. invested by ADQ, the investment arm of UAE, included the Italian Stallion "Commercial International Bank", payment solution guru, "Fawry" and others.

What turns to be problematic is the fact that, the Finance Deficit for Egypt in the 2022-2023 budget is approximately amounting to US$ 32 Bn. against US$ 12Bn. the Gulf Investments plus US$ 7Bn. the IMF loan and the balance would be covered by new debt instruments in US dollars. The situation is said to be dire. KSA announced that it would lead new direct investments in Egypt amounting to US$ 30Bn. the amount is said to be a saver for the Egyptian economy.

Eventually, the stagnant situation had its own shadows on the US$ federal reserve just cutting more than US$ 10Bn. especially in the light of the diminishing streams of Suez Canal and tourism. Additionally, the inflation rates still hiking to reach 15.6% on a yearly basis, whereby still the current levels is not manageable specially with the current interest rates which is in the plateau of 14%.

The MPC of the Central Bank of Egypt, had fixed the rates for interest in the previous meeting despite two consecutive increases of the US Federal reserve, just waving goodbye to the Hot Money.

By that final item, we get to the end of our newsletter, thanks for active reading, like and share.