World Economy

Egypt's government surprises markets with resignation


Egypt's Prime Minister Hazem El-Beblawi announced the surprise resignation of his cabinet in a short statement on Monday, but offered little insight into the reasons behind the decision. State-owned media reported that President Adly Mansour asked Beblawi to stay until a successor was found.

Although the news was largely unexpected, investors on Egypt's benchmark stock exchange EGX30 reacted positively, pushing the index up 0.3 percent to close at the highest level in over five years.

Field Marshal Abdel Fattah El-Sisi, the country's defense minister who oversaw the ousting of Mohamed Mursi amid widespread public protests last summer, is widely tipped to nominate himself as a candidate for the presidency.

Egyptian army chief Abdel Fattah al-Sisi
Maxim Shemetov | AFP | Getty Images

"The government resignation was a surprise as it was not technically a necessary step ahead of El-Sisi's announcement," Farouk Soussa, Chief Economist for the Middle East at Citi, told CNBC.

An exact date for presidential elections has yet to be set following a resounding voter approval of constitutional amendments in January. It effectively gave authorities a maximum of 90 days to hold elections, but state-owned Al-Ahram noted last week judicial delays could set the process back.

(Read more: Egypt votes in tense poll on new constitution)

Beblawi has been facing mounting criticism, most recently for a minimum wage law that led to a series of worker strikes. He spoke in broad strokes about the cabinet's achievements in the televised address.

"For Beblawi, it seems there wasn't enough upside in staying in the job to warrant taking the kind of flak he has in recent weeks, particularly as a change of government is imminent following elections", Soussa added.

Egypt's economy has been reeling from the aftermath of a political rollercoaster that began with the uprising in January of 2011. Tourism, a key earner of hard currency, saw its nascent return to the global stage take another knock this year after a tourist bus was ambushed in the south of the Sinai Peninsula, killing two South Korean visitors and one Egyptian. Beach resorts in the area had been largely immune to the regular turmoil in other parts of the country.

A stimulus package, the second since the new interim government took over, was passed earlier this month in a bid to keep the economy afloat. At $4.87 billion, mostly through support from oil-rich Gulf states such as Saudi Arabia and the United Arab Emirates, it was marginally higher than previously announced.

(Read more: Egypt needs 'all the stimulus it can get': Finance Minister)

On February 12, Fitch Ratings said the country's ratings had stabilized, although a swift recovery was not on the cards.

"We expect economic performance to improve over our two-year forecast period but by end-2015 the economy will still be much weaker than in 2010, illustrating the damage to Egypt's credit profile caused by political and economic turmoil".