The past month has been dominated by events in Egypt. Renewed clashes between protestors and the security forces, coupled with the resignation of the interim government, have left parliamentary elections planned for later this month in serious doubt. For the markets, the main concern is that political uncertainty will accelerate capital outflows and heighten external financing risks. The central bank is burning through its reserves at an unsustainable pace and, unless funding assistance from the IMF can be agreed within the next few months, will be forced to devalue the pound. Unsurprisingly, Egyptian markets have tumbled – the equity market has hit fresh lows, while bond yields, particularly at the short end of the curve have surged.
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