Investment bank Beltone expects the erosion of Egypt’s foreign-currency reserves, which have steadily dwindled since last year’s revolution, to continue, albeit at a slower rate.

The Central Bank of Egypt announced Sunday that Egypt's foreign reserves fell by $636 million in February and now stand at $15.72 billion. This is well under half of what they were before last year’s popular uprising.   

"The improvement in the net international reserves decline rate actually began in January 2012,” Beltone states. “If it weren’t for the $0.657 billion in debt repayments usually scheduled every January and July, net reserves would have witnessed a decline of $1 billion in January 2012 instead of $1.7 billion – which is an improvement from the average loss of $2 billion every month since October 2011."

Analysts say the rate of decline has lessened recently due to positive political developments. 

Beltone expects pressures on Egypt’s foreign currency reserves to ease as Egypt’s post-Mubarak political scene takes shape, pointing to the convening of parliament, the setting of a date for forming a constituent assembly and holding presidential elections – all of which will culminate in the military handing over power to a civil authority.

"Political progress had a positive impact on both the sources and uses of foreign currency in February 2012, particularly items of the capital account,” the investment bank stated. “This same trend is expected to continue.”

Beltone estimated that Egypt now has enough foreign currency to cover 3.15 months worth of imports, putting Egypt’s monthly import costs at some $5 billion.

"We expect the import cover to continue to decline in 2011/12 as import values increase and forex reserves continue to incur losses, to reach three months of imports by the end of March 2012, after which we believe the central bank will unlikely opt to defend the currency, unless it receives external financing,” Beltone predicted.

Beltone expects foreign currency pressures to continue to ease until March, but also anticipates that negative economic indicators – which it described as the "residue of the past year" – to offset the positive impact of political progress on the balance of payments.

"The lack of macroeconomic soundness will still have a negative impact on investor appetite, leading to subdued capital account performance,” Beltone concluded, predicting that Egypt’s Forex reserves would shed some $0.6 billion in March.