CAIRO – A trickle of foreign donor aid looks like Egypt's best hope of averting a balance of payments crisis for now because many of the investors who fled the country last year are loath to return until the government seals a loan from the International Monetary Fund (IMF). A deal with the IMF would lend vital credibility to a new administration desperate to revive inward investment that ground to a halt after last year's popular uprising against Hosni Mubarak. “Until the IMF deal is signed, you are still going to have a lot of people on the sidelines waiting for that stamp of approval and that policy backstop,” said Antony Simond of Aberdeen Asset Management, which is not investing in Egypt. The IMF wants the government to push through subsidy reform and other potentially unpopular measures to rein in a yawning budget deficit before it advances the $4.8 billion loan. But hope has been fading that President Mohamed Morsi's cabinet will move fast to impose the complex, risky reforms just months before expected parliamentary elections. The IMF talks were delayed last week and will resume in the last week of October, Prime Minister Hisham Kandil said Wednesday. An IMF delegation had been due to arrive in Cairo in late September but the government said it needed more time to draw up the reform plan. “With (foreign) reserves running at little more than three months of import cover, any material delay in concluding talks would likely see confidence rapidly wane and downward pressure on the currency quickly resume,” said HSBC in a recent note. The mass of investors still avoiding Egypt - partly because of lingering fear of a sharp currency devaluation - have missed out on a dizzying 55 percent surge in stock prices and tumbling treasury yields since the government took office. It came as Arab Gulf states began honoring pledges of support, stemming an erosion in Egypt's foreign reserves, and the government signaled a new resolve to lure investors. Foreigners who wound down their Egyptian-pound treasury bill holdings between the uprising and May this year became net buyers again in June, central bank data showed. Asset managers including Invest AD of Abu Dhabi and Silk Invest were already invested in Egyptian equities during the turbulent period of army rule after Mubarak's overthrow. Silk holds local-currency corporate bonds and shares such as investment bank EFG Hermes, which has dollar-based fee revenue and therefore less exposure to local currency risk. “When you look through the noise, the country is going in the right direction,” said Daniel Broby, Silk's chief investment officer, citing elections, Morsi's move to limit the military's power, less corruption and better allocation of state resources. “You still have the IMF to step up to the plate, but funding coming from other sources is showing they can muddle through for now,” he said. Invest AD has ramped up its presence since the start of the year, focusing on consumption-linked stocks given the long-term growth prospects offered by a fast-growing population, said its head of asset management, Mohammed Al-Hashemi. – Reuters
