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Egypt foreign reserves drop for first time post-devaluation

Reuters , Tuesday 8 Jan 2019
The Egyptian Central Bank offices in Cairo, Egypt (AP)
The Egyptian Central Bank offices in Cairo, Egypt (AP)
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Views: 2465

Egypt’s foreign currency reserves fell to $42.551 billion in December from $44.513 billion in November, the central bank said on Monday, the first drop since a 2016 currency devaluation.

The last time Egypt’s foreign currency reserves fell was in October 2016, the month before it signed a three-year, $12 billion deal with the International Monetary Fund that included a currency float.

That deal was part of an effort to attract foreign investors who fled during Egypt’s 2011 uprising.

The central bank did not give reasons for the drop.

“It was a surprise,” Naeem Brokerage head of research Allen Sandeep said of the development, adding he was unsure of the reasons.

Egypt expects to receive the fifth instalment of its IMF loan, worth $2 billion, in January. That tranche will offset December’s drop, Sandeep forecast. “In January I would think it would go back to the $44 billion mark,” he said.

The fifth tranche had been expected in December and the delay has likely contributed to the drop in reserves, said Alia Mamdouh, director of macro and strategy at Beltone Financial.

 “I don’t think it’s alarming because we are expecting the tranche to be disbursed in January, and 5 billion Euro bonds are expected to be issued in the first half of this year,” she said.\

The central bank also had outstanding liabilities of $3 billion in December that would have contributed to the decrease in foreign reserves, said Mamdouh.

Egypt has been pursuing tough economic reforms as part of the IMF programme. In addition to the currency devaluation, reforms have included new taxes and deep cuts to energy subsidies, straining the budget of tens of millions of Egyptians.

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