Aurelia Butler

CAIRO (Reuters) – Gulf Arab states are channelling up to $22 billion to Egypt to help it overcome a currency crisis, the third such rescue in a decade, as analysts watch for greater exchange rate flexibility to avert future crises. The central bank allowed Egypt’s pound, which had been stable since November 2020, to drop by 14% against the dollar on March 21 after Russia’s invasion of Ukraine prompted investors to withdraw billions of dollars from Egyptian treasury markets. Last week Saudi Arabia said it had deposited $5 billion with Egypt’s central bank and would make additional investments that could bring as much $10 billion in foreign currency into Egypt. Qatar has pledged investment deals worth $5 billion, Egypt’s cabinet said, and details on the purchase of stakes worth a reported $2 billion by Abu Dhabi sovereign fund ADQ are expected soon.”The flurry of Gulf investments into Egypt is reminiscent of the period after the ousting of President Morsi in 2013 when the Gulf pledged $23 billion in financial aid,” said James Swanston of Capital Economics. Saudi Arabia, the United Arab Emirates and Kuwait sent Egypt $23 billion in grants, cash deposits and fuel shipments in the 18 months after Abdel Fattah al-Sisi, then army chief and now president, led the overthrow of Islamist president Mohamed Mursi in 2013. That aid allowed Egypt to put off an IMF accord and spend more on supporting the currency, which came under severe pressure after the 2011 uprising that ended Hosni Mubarak’s 30-year rule. During a second currency crisis in 2016 Egypt devalued the pound by half, and Saudi Arabia deposited about $3 billion and the UAE $1 billion with the central bank, setting up an IMF accord in November 2016. Egypt, which continued to grow during the coronavirus pandemic but saw its current account deficit widen as import costs rise and tourism receipts dwindle, said last week it was in talks with the IMF for potential funds and technical support to hedge against the effects of the latest crisis.Last month Sisi visited Saudi Arabia and hosted the UAE’s de-facto ruler in Sharm el-Sheikh, as Egypt reinforced ties with Gulf allies and participated in an emerging Arab-Israeli axis.HARD ASSETS This time around, Gulf countries seem to be toughening conditions by seeking hard assets in addition to central bank deposits, a demand that could increase the cost to Egypt, analysts said.Inflows from Cairo’s Gulf allies would reassure the IMF and encourage foreign investors to return to Egypt’s high-interest, short-term treasuries, leaving the country still vulnerable to global financial shocks, said Amr Adly, an assistant professor at the American University in Cairo. “This is a message that we have rich friends, and that these rich friends are willing to give up money in times of need,” he said. Egypt’s currency could come under more pressure as higher global commodity prices feed into inflation, putting even more strain on the pound, other analysts said. “We continue to see a more flexible FX regime as critical to Egypt’s long-term external account vulnerabilities,” HSBC said in a note. “But with the bilateral inflows providing relief and seemingly having no policy conditions attached to them, the pressure for substantive change to the FX regime may be set to fade,” it added.On the day of the devaluation, the central bank’s Monetary Policy Committee stressed “the importance of FX flexibility to act as a shock absorber”.Egypt’s pound was at 18.22 to the dollar on Monday, just above the 18.17 to the dollar it fell to on March 21. Monica Malik of Abu Dhabi Commercial Bank said that because Egypt had exceeded its IMF borrowing quota, any new assistance could involve funding from other multilateral institutions and bilateral components such as Gulf Cooperation Council countries. “The GCC support measures are likely to be supportive for Egypt meeting the IMF’s requirement under its exceptional access criteria,” she said. More

JPMorgan (NYSE:JPM) predicted Turkey’s annual inflation would hover in the 65-70% range until the very end of the year when it could fall to 44% due to strong base effects.”The CBRT (Turkey central bank) has put all its emphasis on the FX-protected deposit scheme and is unlikely react to the CPI data no matter how strong it is,” said Yarkin Cebeci at JPMorgan in a note to clients.Goldman Sachs (NYSE:GS) forecast inflation to peak around 67% in May-June and remain above 65% for most of 2022 though end the year at 45%. “We also see upside risks from commodity prices and the monetary policy stance which is not geared to fighting inflation,” Murat Unur at Goldman Sachs wrote in a note to clients. “Real rates in Turkey are now deeply in negative territory and are likely to fuel inflation further in the coming months.” More

Costs for UK manufacturers have “shot up in an unprecedented manner”, according to official statistics that point to the price of food rising further later this year.Supply chain challenges, increasing costs and labour shortages have all pushed up prices for UK food and beverage manufacturers, an analysis of various official surveys published on Monday by the Office for National Statistics found. In March 2022, 60 per cent of UK businesses in the food and beverage sector reported being affected by rising energy prices, the highest of any industry and well above the 38 per cent average across all sectors, the data showed.UK food and beverage consumer prices rose at an annual rate of 5.1 per cent in February, the fastest pace in more than a decade.“Prices have shot up in an unprecedented manner,” said a food manufacturer that took part in a survey by the ONS. “Then electricity prices and wages on top of our raw materials — it’s very difficult. We are struggling to keep pace with the increases.” “We have experienced significant price increases across the supply chain. These have been anything up to and including 100 per cent increases,” echoed another food manufacturer.Cost rises take time to pass through the supply chain and the latest figures suggest pressures are mounting for consumers. In March, nearly 60 per cent of food and drink producers reported that they had to pass on price increases to customers, well above the 37 per cent across all businesses.About one-third of UK food producers also reported paying higher staff costs, while a similar proportion lamented difficulties in finding workers.  “We continue to face significant challenges as a business and remain in constant crisis management mode,” said one food manufacturer.The data were published as the price cap set by the energy regulator rose by an average of 54 per cent in April, reflecting spiralling international gas prices following Russia’s invasion of Ukraine. Food manufacturers are particularly exposed to the rise in energy costs as about one in five have variable electricity prices, a higher proportion than in the other industries. Faced with the rising cost of living, about one-third of respondents said they had spent less on food shopping and essentials in March, a strong rise from a few months ago, adding weakening demand to manufacturers’ challenges. The ONS data showed that food and beverage businesses were more likely to have incurred extra costs due to the end of the Brexit transition period on January 31 last year. More than half of food producers have switched to UK suppliers as a result. In March, nearly half of businesses in the sector reported additional transportation costs — twice as many as across all sectors. One-third said costs were up due to increased red tape, while one-fifth reported higher import prices. “Goods imported are taking longer to reach us. They cost more, and we are having to consider other suppliers’ goods whose prices are greater than what we bought before,” said an animal feed manufacturer. More

The value of the market would jump 72.6% from the Portland-based research firm’s estimate of nearly $73 billion in 2020, when COVID-19 delays and reallocation of funds to support the health crisis “severely affected” the defence sector.An increase in geopolitical conflicts and bigger military budgets would likely push the figure up at an annual compounded rate of 5.4% until 2030, the report said.U.S. President Joe Biden last week requested a record peacetime national defence budget, which would prioritise modernizing its nuclear “triad” of ballistic missile submarines, bombers and land-based missiles.The report predicted that demand for small nuclear warheads, which can be easily deployed through aircraft and land-based missiles, would fuel faster growth in these segments, although submarine-launched ballistic missiles (SLBMs) accounted for a quarter of the market in 2020.While North America dominated more than half the global market in 2020, the report predicted the fastest growth would come from the Asia-Pacific region on initiatives by India, Pakistan and China to bolster their nuclear arsenals.”However, international treaties and consortiums discourage nuclear testing,” the firm said in a report summary. “This hampers the market growth.” It predicted that the rising influence of non-nuclear proliferation treaties and national efforts should increase the number of warheads in storage or awaiting dismantlement.Active weapons, however, accounted for the “lion’s share” – more than two-thirds – of the market in 2020, it said, due to investment in nuclear arsenals and new warhead purchases.Britain, China, France, Russia and the United States at the start of the year issued a joint statement saying there could be no winners in a nuclear war and it must be avoided. More