* IMF has welcomed Egypt's reform efforts
* Currency reform has boosted portfolio investment
* Economists say implementation will be key to success
By Asma Alsharif
CAIRO, May 14 Egypt should make it easier to do
business and try harder to attract direct investment if it is to
make progress towards economic recovery after passing its first
review from the International Monetary Fund, economists say.
An IMF delegation was in Cairo last week to assess reform
efforts. In a largely encouraging statement on Friday, it said
the programme was "off to a good start" and agreed on a second
loan instalment of $1.25 billion, part of a $12 billion
arrangement to support economic reforms.
Egypt floated its currency last November and hiked interest
rates in an effort to attract foreign currency back into the
banking system. The move attracted at least $8 billion in
remittances that once found their way to the black market.
The government also introduced a value-added tax and subsidy
cuts to curb the budget deficit, moves the IMF said would boost
Egypt's fiscal position. Cairo is trying to cut the deficit to
9.1 percent next year from an expected 10.9 percent this year.
"We are seeing aggressive reforms from the government to
bring the deficit down and we're seeing numbers improving beyond
expectations when it comes to foreign liquidity in the banking
sector," said Hany Farahat, economist at Cairo-based CI Capital.
Egypt is struggling to revive its economy since the Arab
Spring uprising of 2011 drove away tourists and foreign
investors, important sources of hard currency.
"CERTIFICATE OF CONFIDENCE"
Egypt's Finance Ministry said the IMF review was "a new
certificate of confidence for the strength of the Egyptian
economic reform programme".
Since the float, foreign investment in Egyptian government
securities has reached $5.7 billion, against pre-float levels of
"Egypt has succeeded in attracting large amounts of
portfolio investment. The next big step is attracting direct
investment, whether local or foreign, and for that to happen a
regulatory environment for investment needs to be cleared," said
Reham El-Desouki, economist at Arqaam Capital.
Egypt is passing laws aimed at attracting investment but
economists say it must expedite matters to reassure investors.
"The biggest risk now is execution risk and a lot of
investors will be waiting to see how this will be implemented
through the executive regulations. So there will be a pause in
significant direct investment until a regulatory environment is
clear," El-Desouki said.
Parliament has approved a long-delayed investment law that
aims to cut bureaucracy and incentivise investors but it has yet
to announce the regulations that will underpin the law.
"If the executive regulations don't come out then there is
no law ... This is causing us not to tap into the potential that
we would be capitalising on today if the whole legislative
reforms had been completed," Farahat said.
(Reporting by Asma Alsharif; editing by Giles Elgood)