The Central Bank of Egypt and its governor Farouk El-Okdah have been widely praised for maintaining financial stability in the midst of a revolution – and in the months since
Maintaining financial stability is an achievement for policymakers at the best of times.
But doing so in the midst of a revolution – remarkably so. Yet this is precisely what Farouk El-Okdah, governor of Egypt’s central bank, managed to do during the country’s most turbulent days earlier this year and over the months since.
El-Okdah, who has been governor for two four-year terms since 2003, says his main achievement was maintaining confidence in the Egyptian market. “This can be attributed to two things: monetary stability and foreign exchange market stability,” he says.
Capital fled the country amid the turmoil in late January, but El-Okdah says much of this was “hot money” – the majority of long-term investors, he says, stayed put. Moreover foreign investors still hold $3.5 billion in T-bills, something El-Okdah says represents a vote of confidence in the country’s prospects.
When protests erupted on Tahrir Square on January 25, the central bank moved swiftly to close banks. It did so for two weeks “because of the crisis on the streets and lack of safety for the branches”, El-Okdah says. “We put a restriction on how much people could withdraw in cash, which was $10,000 (E£50,000), and guaranteed everyone’s deposits.”
Since then, total deposits in the banking sector have increased by E£30 billion by early September. Foreign currency deposits have risen by only 1% since January reaching 19% of the total – a level El-Okdah suggests represents a “full vote of confidence” in the currency.
He says the central bank intervened in the currency market only once, on February 8, a few days after reopening the banks, to buy pounds and support the currency against speculation. “I don’t mind if the pound depreciates, but it should be based on supply and demand, not speculation,” he says.
His timely intervention – and deft management since – appears to have done the trick. The Egyptian pound has depreciated by only 6–7% since January, which El-Okdah and many observers consider to be a reasonable level in the circumstances.
Bank of Alexandria’s (BoA) chairman Bruno Gamba says that El-Okdah deserves much of the credit for the fact that the Egyptian economy has managed to emerge from a turbulent eight months relatively unscathed. “The stability of the financial sector during the revolution comes down to central bank management and its wise policies,” he says.
El-Okdah, a former head of Bank of New York’s Middle East division, notes that during his governorship, investors have increased their risk position on Egypt to five years. In the 1990s, the maximum tenor for Egyptian T-bill investors was 180 days. “That’s a big change”, he says, adding that he hopes it won’t be long before foreign investors – and tourists – return to Egypt, a country with a large, young population eager for jobs.
He cites the strong rebound in foreign investment in the aftermath of the financial crisis as a hopeful sign that investors remain confident in Egypt’s long-term potential, and in the strength of the domestic banking system, which has undergone sweeping reforms under his stewardship.
“Once this is behind us I’m sure tourism will rebound, foreign direct investment will rebound and the financial investors will come back,” he says.