Bloomberg News

Egypt Searches for New Premier as Economic Concerns Deepen

July 18, 2012

Egyptian President Mohamed Mursi focused his search for the country’s next premier on a list of technocrats with the experience needed to revive the limping economy.

Egypt’s first elected civilian leader said he won’t rush the formation of a new Cabinet “in order to avoid disrupting the country or the flow of work,” the state-run Ahram Online website reported. He was originally due to appoint a prime minister last week, the state-run Al Gomhuria said June 12.

Mursi inherits a $240 billion economy battered by strikes, unrest and the flight of foreign investment following the uprising that ousted Hosni Mubarak last year. In his first foreign trip as president, he travelled to Saudi Arabia last week to discuss $4 billion pledged to Egypt by the world’s biggest oil producer. The International Monetary Fund has said it is waiting for political consensus on an economic program before it proceeds with talks for a $3.2 billion loan.

“It has now been 18 months since we had an administration capable of making policy,” Simon Williams, an economist with HSBC Bank Middle East, said by phone. “The economic challenges are huge and external support is essential and a period of reform is imperative. And there will be no access to external funding and all kinds of policy measures that local and foreign investors need to see until we see a government in place.”

While Egyptian stocks have recouped losses since Mursi’s election win, the benchmark index is still more than 30 percent below its end-2010 level. Yields on benchmark 10-year dollar bonds are about a percentage point higher at 6.25 percent.

Prime Candidates

Mursi, the Muslim Brotherhood’s candidate for president, promised to choose a premier from outside the Islamist group. Candidates tipped for the job by local newspapers include Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., former central bank Governor Mahmoud Abul-Eyoun, the bank’s current governor, Farouk al-Okdah, and Hazem Beblawi, a former deputy prime minister and finance minister.

Mursi met with Kamal al-Ganzouri, the country’s interim prime minister, to discuss the formation of a new government, MENA reported today.

El-Erian said in an e-mailed response to questions yesterday that he hadn’t been approached and wouldn’t take the job. He said the premier should be chosen from among people “who have been living in Egypt and who have participated in person in Egypt’s revolutionary process.”

“An economic background is a key criteria in the person to be named prime minister,” Said Hirsh, an economist at London- based Capital Economics, said by phone. “Politics is a huge problem at the moment, but sorting out the economic problems there could eventually make or break his tenure over the coming months.”

‘Weak Premier’

Mohamed ElBaradei, a former head of the United Nations nuclear watchdog agency, was touted by local media as another potential premier who would elicit the support of secularists and youth groups opposed to Islamist rule. Mursi is unlikely to select such a well-known figure, said Hani Sabra, Middle East and Africa analyst with the Eurasia Group.

“A weak, relatively less-known figure can be scapegoated and removed from office if the government is unsuccessful and grows unpopular,” said Sabra in an e-mailed note. “A weak premier will not be independent-minded, and will be much less likely to challenge or embarrass the president.”

With a constitution defining his powers yet to be drafted, Mursi has struggled to assert his authority against the judiciary and the country’s senior generals, who took power after Mubarak was toppled.

‘Wasting’ Reserves

Judges overturned the president’s decision to reinstate the Islamist-dominated parliament earlier this month, after the military dissolved the assembly and awarded itself wider legislative powers. A court hearing yesterday on the legality of the panel charged with drafting the constitution was adjourned until tomorrow after protesters disrupted proceedings.

The other candidates named by the Egyptian press are mostly from financial backgrounds. Abul-Eyoun, who headed the central bank from October 2001 to December 2003, criticized Egypt’s monetary policy in March, saying the country was “wasting” its foreign reserves to support the pound.

International reserves have fallen by more than a half since the uprising against Mubarak began in January 2011, reaching $15.5 billion in June. The nation’s domestic borrowing costs jumped by about 50 percent in the same period as foreign investors quit the market.

El-Okdah, who took over from Abul-Eyoun at the central bank, said on June 17 that economic growth is expected to slow to less than 2 percent this year, from 2.5 percent in 2011. The IMF in April forecast growth of 1.5 percent.

IMF Talks

El-Beblawi, an economist who served as deputy prime minister and finance minister after Mubarak’s ouster, said in September that the government was reaching out to Gulf states such as the United Arab Emirates for financial help. He was involved in the early stages of the IMF loan request.

Once a new government is formed, Egypt may see a “breakthrough” in its talks with the Fund, Momtaz El-Saieed, who replaced El-Beblawi as finance minister, said on July 15. “Egypt, in any case, doesn’t need the IMF loan in itself, but we were hoping for the seal of confidence from the fund’s experts,” he said in a statement.

To contact the reporter on this story: Digby Lidstone in Cairo at dlidstone@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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