A woman leaves a currency exchange office in central Cairo (Photo: Reuters)
The slight increase in Egypt’s foreign reserves in April was driven by temporary inflows and is probably not enough to sustain growth, a prominent economist has told Ahram Online.
Egypt's net foreign reserves inched up to $15.21 billion at the end of April, their first climb since December 2010, the country's central bank announced on its website on Sunday.
"The details of April’s foreign currency inflows aren't available yet but there are several positive factors that contributed to the improvement," Hani Genena, chief economist at Cairo-based investment bank Pharos Holdings, told Ahram Online.
Reserve figures showed a $92 million increase on the $15.12 billion level they reached at the end of March.
"The steadiness of the level of reserves could be attributed to three main reasons: yellow transfers, a drop in demand for luxury goods and a pick-up in tourism," Genena said.
'Yellow transfers' is the term commonly used to refer to funds sent from Iraq to Egypt in April as compensation for assets Egyptian workers lost in Iraq during the Gulf War.
These funds, sent over two decades after the end of the war, had a significant effect on April's reserves, claims Genena.
"The $400 million that went into the Egyptian economy from Iraq eased the pressure on the pound," Genena said, explaining that their arrival meant the central bank was not forced to use up reserves to correct the country's balance of payment deficit.
Also helping stabilise reserves were changing consumer habits in light of Egypt's economic woes.
"There is a drop in luxury imports, driven by weak demand in the Egyptian market," Genena said. "Many retailers, especially in the consumer goods sector, are using up their inventories instead of importing."
A relative recovery of tourism in the first quarter of 2012 suggests that April -- the month of Easter holidays -- also saw solid tourist inflows, Genena said.
"Red Sea resorts saw excellent occupancy rates during the holidays from foreign tourists," he said.
Not in the clear yet
Egypt has been facing an acute balance of payment crisis since early 2011 when economic activity significantly slowed down after the popular uprising that led to the removal of president Hosni Mubarak.
To counter the problem, Egypt has turned to the International Monetary Fund (IMF) for a $3.2 billion loan for budgetary support.
The improvement in reserves, however, does not mean that Egypt has overcome its financial troubles.
"A drop in foreign currency outflows is not enough to sustain economic growth," Genena said.
"Imports are very important, it is essential for investments especially in the form of raw materials or machinery."
He believes that Egypt will depend on foreign help in the coming months, before a president is elected in June and a deal with the IMF is finally struck.
Saudi Arabia has stated on many occasions that it is commited to helping Egypt through the crisis.
On Saturday, the Kingdom's finance minister Ibrahim Al-Assaf said that Saudi will provide Egypt with up to $3.7 billion in financial aid despite recent strained ties between the two countries.
Total reserves have depleted at a lower rate over the last two months. They lost $660 million between February and March; last year, by contrast, saw drops of around $2 billion per month.
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