Regional

Egyptian currency reserves edge further below "critical" level

An Egyptian man changes U.S. dollars to Egyptian pounds at a currency exchange office in downtown Cairo, Egypt, Wednesday, Jan. 2, 2013. (AP Photo/Khalil Hamra)

CAIRO: A slide in Egypt's foreign reserves slowed sharply in February, central bank data showed on Monday, but their low levels kept Cairo under heavy pressure to secure an IMF loan.

The central bank, which has been tightly rationing dollar supplies, said on its website that reserves slipped to $13.5 billion at the end of last month from $13.6 billion at the end of January.

February's drop was marginal compared with the $1.4 billion dive in January, which was exacerbated by a $650 million debt repayment to the Paris Club of creditor nations.

However, reserves remain under $15 billion, a figure that would cover just three months' imports. "Egypt's foreign exchange reserves are still extremely low and below what the central bank previously called a critical minimum level," said William Jackson, an economist from Capital Economics.

"At the moment they are managing to stem the decline in reserves by tightening capital controls but this is unsustainable in the long run," he added.

Reserves now stand at little more than a third of the $36 billion Egypt held immediately before the popular uprising that removed President Hosni Mubarak from power in February 2011.

Egypt's Islamist government has produced an economic reform plan which it wants to use in negotiating a $4.8 billion loan with the International Monetary Fund. The deal was agreed in principle in November but put on hold at Cairo's request during street violence the following month.

When the central bank began currency auctions in late December, it sold $75 million to commercial banks daily. However, those sales have dwindled to just three a week, with the amount on offer reduced to about $40 million.

Egypt's pound has lost more than eight percent against the dollar since the currency auctions began.

While this slide has slowed in recent weeks, Jackson said the central bank is not well prepared for any big drop in the pound provoked by a deepening of the rift in Egyptian politics between the ruling Islamists and opposition parties, most of which say they will boycott parliamentary elections to be held between April and June.

"Our bigger concern is if there is a fresh eruption in political turmoil, and investors and Egyptians lose confidence. This could put such pressure on the pound that the central bank could not support it with its limited reserves," he said.

Visiting U.S. Secretary of State John Kerry said at the weekend that it was "paramount, essential, urgent" to steady the Egyptian economy and urged political parties to unite in supporting an IMF deal.

 

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