We need a foreign currency liquidity buffer of between USD 8-10 bn to get through the FX crunch and go ahead with a successful float in the coming months, according to a note to clients by EFG Hermes lead MENA economist Mohamed Abu Basha seen by Enterprise. Better yet, he thinks it could be within reach.

The rationale: EFG Hermes produced the estimate “after considering current levels of FX backlogs, as well as enough buffers for the [Central Bank of Egypt] to ensure sustained liquidity in the interbank markets for an extended period of time as it ensure the return of confidence back to the market.”

Where the money’s coming from: privatization, debt, state revenues. EFG Hermes is confident that the Madbouly government will raise another USD 1 bn from the sale of state assets over the next three months, taking total proceeds from the privatization program to almost USD 3 bn. Recent debt agreements with the UAE and China have contributed a further USD 2.4 bn, in addition to inflows from revenue-raising measures such as the car import and the military service settlement schemes.

Remember: The government wants to raise another USD 5 bn from its offering program between November and June, and is working on the sale of a number of assets including two military-owned companies, wind farms, and one of the Siemens-built combined-cycle power plants.

With that in mind, Abu Basha sees signs that the “EGP’s adjustment is coming close to an end.” He notes evidence that FX is “accumulating in the economy,” particularly in the form of corporate foreign-currency deposits, which “have risen by USD 5 bn in the 18 months to August, hitting a historic all-time high of USD 17.5 bn.” Add “genuine improvement in CA dynamics … and extended stability of the parallel market rate” from May through mid-October, and it feels likely that we’re reaching a juncture where a resolution could be possible.

So, where does the EGP land against the greenback? “We see the EGP 40 mark as being an eventual area of stability for the EGP when the FX market clears,” Abu Basha wrote.

A credible exchange rate will trigger significant inflows from both investors and folks in Egypt who have USD under their proverbial mattresses. “An EGP closer to the 40-mark would primarily translate into an EGP that is nearly as cheap as it was post the 2016 devaluation … providing an attractive entry point for foreign investors.”It could also see some USD 12-14 bn enter the system as individuals holding USD or trading currency in the parallel market return to safty. Factoring in Egyptian expats, this could increase to USD 20 bn if easing FX liquidity conditions convinces them to bring money into the country.

Now is the time for policymakers to act: “A longer time period opens room for downside risks, as was the case in the past two weeks, with a rally in the parallel market. An elevated FX rate at this stage would not necessarily bode well for debt dynamics, in addition to magnifying inflationary pressures,” Abu Basha wrote.

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