During the past month, Egypt has formally requested a USD 4.8 billion loan from the IMF, the details of which are said to be discussed in the coming weeks. Before that, and less than two weeks after the announcement of the new government under Prime Minister Hesham Kandil early August, President Morsi assumed the legislative powers the Supreme Council of the Armed Forces (SCAF) had assumed upon the dissolution of the Egyptian parliament in June. Moreover, he ordered the retirement of two of the country’s most influential generals, including Field Marshal Tantawi, who as the head of the SCAF acted as the country’s de facto head of state in the period between the fall of former President Mubarak and Morsi’s election last June. On the foreign policy side, President Morsi visited China and Iran. The visit of the latter country represented the first visit by an Egyptian head of state since the 1979 Islamic Revolution. During this visit however, Morsi also spoke out against the oppression by the Syrian regime – an ally of Iran. In August, Egypt’s new Defence minister also reassured Israel of Egypt’s commitment to the 1979 Camp David peace treaty between both countries.

Impact on country risk

The past month has proven to be one of important political changes, as President Morsi is starting to make use of the legitimacy that his democratic election has brought. After almost 18 months of political stalemate, it is positive for the country that decisions are finally being taken, while it will be important for Morsi to continue to seek national unity, as secular and liberal organizations and parties fear that Morsi and the Muslim Brotherhood are seizing too much power. An important test will be if and how the government will assemble the political support required for the IMF program that will inevitably entail some difficult policy decisions. An IMF program would not only bring in money from the IMF and restore dwindling foreign exchange reserves, it is also expected to be complemented with bilateral financial support and it should restore investor confidence in the country’s economy, which has been plagued by one year and a half of uncertainty.

Analyst: The Risk Management Team, r.cecchi@credendogroup.com