CAIRO (Reuters) - Egypt has begun devaluing its currency to help revive the economy and meet the conditions of an expected IMF loan and the depreciation has further to go, a business leader in the ruling Muslim Brotherhood said on Sunday.
Hassan Malek, chairman of the Egypt Business Development Association and a senior informal adviser to President Mohamed Mursi, told Reuters the government had begun steps to cut the budget deficit and stabilise the country’s finances, but tougher measures would have to wait until after parliamentary elections expected in April.
“We have started already some increase in taxation, and there is the devaluation of the pound and we raised some prices of petrol and gas,” Malek said in an interview.
“Normal people in the street now understand that there is a price that we will have to pay for the IMF agreement.”
Asked whether he expected a further depreciation of the Egyptian currency to help exports and tourism, he said: “I‘m not of course a technical (expert) but people expect a little bit of devaluation in the future.”
Malek stressed he was speaking in a personal capacity and not on behalf of the government or the governing Islamist Freedom and Justice Party.
The Egyptian pound has lost some 8 percent against the dollar since the start of the year and a black market has sprung up with the local currency being traded at more than 7 pounds to the dollar, compared to an official rate of 6.73.
Foreign exchange bureaux are overwhelmed by demand for dollars which are in short supply due to political turmoil.
Malek said the economy was going through a very difficult period because the transition to democracy launched by the 2011 uprising that toppled former President Hosni Mubarak was not yet complete and institutions were not working fully.
“ECONOMY WON‘T COLLAPSE”
Political turmoil has severely hit tourism, a major foreign currency earner, and many wealthy Egyptians are keeping their money abroad rather than investing in their country.
“The Egyptian economy is not going to collapse,” he said. “The real problem is the delay in building constitutional democratic institutions. That’s why the present government feels it is temporary and of course we know we are in a transitional period.”
Malek said he hoped Egypt could conclude a long-delayed $4.8 billion loan agreement with the International Monetary Fund before the election, although sensitive measures such as cuts in subsidies should be implemented gradually.
Malek, who was imprisoned under Mubarak with top Muslim Brotherhood leader Khairat el-Shater, his friend and business partner, said he was actively trying to persuade wealthy Egyptians to return and invest in the country.
Asked if he was personally involved in trying to persuade billionaires who have left Egpyt and had their assets frozen or been convicted of economic crimes to come home, he said “Yes. I am inviting everyone to come to Egypt. It is very important to prioritise legislation and court cases should be solved first... before these people come back.”
Malek confirmed he was in contact with former Mubarak-era trade minister Rachid Mohamed Rachid, a respected liberal economist and businessman who fled to the United Arab Emirates during the uprising, and would like him to return to Egypt.
Rachid was sentenced to five years in jail and fined $1.57 million in absentia in 2011 for profiteering and squandering public funds. Several such sentences have recently been annulled on appeal and retrials ordered.
Asked about his contacts, Malek said : “It is a personal initiative with the coordination of the authorities. But it’s not my decision (whether or not to pardon Rachid). The decision in the end is for the court and the government.”
Asked whether all big businessmen were welcome to return regardless of the roles they played in the Mubarak era, he said: “I have no personal opposition towards any person... if their debts and obligations are first fulfilled.”
Malek said his organisation was also trying to broker a solution to Cairo’s debt to foreign energy companies producing oil and gas in Egypt such as BP, Gas Natural, Petronas, Shell and Dana, that has accumulated since the 2011 uprising.
He disputed the figure of $9 billion cited by consultancy Executive Analysis and European diplomats for the total energy debt, saying it was far less, but declined to give a number.
“Some of their contracts needed to be reviewed because they were not balanced to cover both the national interest and the company interest. So some licences were suspended when they expired, which made a bit of a problem,” Malek said.
“We tried to encourage them by giving them more concessions and rescheduling these payments (owed by Egypt). We opened other opportunities in the same field such as refineries and other projects they can take. Up to this moment, none of these companies has decided to leave,” Malek said.
He acknowledged that most foreign energy companies were still holding back on new investments in Egypt. “They want to see these problems tackled first. They want to see a clear road map, which is normal in such an environment.”
Writing by Paul Taylor; Editing by Stephen Powell