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Egypt's reserves fall in November, further drop expected in December

Political turmoil caused by President Morsi's constitutional declaration damages tourism and foreign investment, drives down Egypt's foreign currency reserves, Beltone investment bank says

Ahram Online, Sunday 9 Dec 2012
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The drop in Egypt's Net International Reserves (NIR) in November to $15.03 billion came as a result of political instability which took its toll on tourism and Foreign Direct Investment (FDI), Cairo-based investment house Beltone Financial said in a statement issued on Sunday.

The closely watched balance is also expected to see further drops in December.

The Central Bank of Egypt (CBE) announced on Thursday that NIR dropped $449 million in November. The drop came despite the disbursal of the third tranche of the Qatari deposit in the CBE amounting $500 million.

Reserves were expected to stabilise in November, but the weakening in both the current account (including the trade balance) and the capital account drove its fall.

"Negative sentiment during November 2012, instigated by court cases against some companies operating in Egypt, would have weighed down on NIR through a wave of portfolio outflows and a slowdown in FDI inflows," Beltone said.

Courts in Egypt have challenged a number of commercial deals reached during the rule of Hosni Mubarak, who was ousted as leader last year, adding to investor worries at a time when the government is trying to revive confidence in the economy.

The latest major court order concerned gold producer Centamin, when an Egyptian administrative court said the company's right to operate the Sukari mine, its main asset, was invalid.

Meanwhile, the value of Egypt's imports continues to rise due to domestic shortages and exports suffer due to a global slowdown, the investment bank explained.

"Furthermore, Egypt’s foreign exchange earners such as the Suez Canal and tourism are not performing at their best, and are expected to have continued their weak trends in November 2012," the bank added.

As for December, Beltone expects NIR to fall on the back of "the extremely deteriorated political environment in Egypt." Such a drop is expected despite the fact that Qatar is expected to deposit the last tranche of its $2 billion package in the CBE in December.

Egypt is experiencing new rounds of political instability following a controversial constitutional declaration issued by President Mohamed Morsi on 22 November. Mass demonstrations for and against the president's decision have taken place across the country over the past three weeks.

The reserves had inched up at the end of April for the first time since the January 2011 uprising, reaching $15.21 billion.

The reserves have plunged by more than half since the uprising, which scared away tourists and investors, two of Egypt's main sources of foreign currency.

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