Financial aid from Arab Gulf states is succeeding in buying Egypt's government time as it battles to prevent a currency collapse, although Cairo may not be able to afford much more delay in securing a loan from the International Monetary Fund (IMF).
An agreement with the IMF on the $4.8 billion loan was expected to come last month, but talks were postponed because of political instability in Egypt. The delay was a trigger for a plunge in the Egyptian pound to record lows.
Officially traded between banks at 6.6350 to the US dollar on Tuesday, the Egyptian pound has lost about 7 per cent of its value in under a month, and now stands 12 per cent weaker than it was before the early 2011 uprising against ousted president Hosni Mubarak.
But in some ways, the currency picture is positive to some investors who predicted an uncontrolled slide of the exchange rate when it began its recent decline at the end of December 2012.
Downward pressure continues on the pound, which is believed to be overvalued. But the Central Bank of Egypt (CBE) has so far been able to manage the devaluation in an orderly way, with the currency sliding in small daily increments that have been shrinking gradually.
Analysts say supplies of hard currency have not dried up in the market, despite authorities' steps to limit the drop in Egypt's foreign reserves. For example, CBE leaders banned travellers from carrying over $10,000 of foreign currency into or out of the country earlier in January.
While licensed exchange houses are quoting weaker rates for the pound than banks do, the gap is moderate. A big, unlicensed black market in dollars does not appear to have developed, though one became a feature of business life during Egypt's last economic crisis about a decade ago.
Meanwhile, Egyptian treasury bill (T-bill) yields have not soared, though they could be expected to do so if banks foresaw a financial disaster.
"One of the key things has been aid that Qatar is providing," said William Jackson, emerging markets economist at London's Capital Economics, referring to about $5 billion in aid which Qatar has provided Egypt since Mubarak's departure. Saudi Arabia has provided $4 billion more.
The money has prevented a steeper fall of the CBE foreign reserves, which at about $15.5 billion have more than halved since the uprising and, by the CBE's own admission, are at critically low levels.
Jackson said the foreign money, which has come in the form of loans, deposits and grants, was a "double-edged sword." It bought time to manage the currency depreciation smoothly but could hurt a future economic recovery if it tempted President Mohamed Morsi's government to avoid cutting subsidies and making other economic reforms needed to secure an IMF deal.
Echoing the views of other economists, he said the IMF loan was important not just because it would replenish reserves but because it would be seen by investors as a stamp of approval for Egypt's economic policies.
For now, many investors seem willing to give Egypt the benefit of the doubt. The average yield on 182 T-day bills issued by the CBE on Tuesday was 13.725 per cent, down from 13.970 per cent a week earlier and 14.104 per cent two weeks ago. Last August, it was well above 15.0 per cent.
"There is no shortage of dollars," said one teller at a foreign exchange house in central Cairo. He added that he was offering the dollar for 7.0 Egyptian pounds - a rate about 5 per cent weaker than the rates Egypt's Central Bank was permitting commercial banks to trade. He declined to be named because he was not authorised to talk.
Some Egyptians are still converting their savings into dollars because of fears of a currency collapse.
"I am buying dollars with my savings to be on the safe side," 36-year-old Hassan Anis said while visiting one Cairo exchange house, where the dollar was being offered at 6.95. "I have come here because it is the best rate I could find."
But a senior commercial banker, who asked not to be named because of the sensitivity of the issue, said there was no sign of a major shortage of dollars in the market - though an order for a large amount may not be filled immediately.
"It depends whether you want the money now or can wait until tomorrow and how much you want. It seems to be patchy," he said. "My sense is there is not a critical shortage and the difference between official and black market rates is not massive."
In response to the decline in its reserves, the CBE began at the end of last month to hold regular auctions of hard currency, usually about $75 million each time, and set a cut-off price for the pound. At each sale the price has steadily weakened, set at 6.6025 on Tuesday.
On the interbank market, the pound is allowed to trade 0.5 percent on either side of the average auction price. After each auction so far, it has swiftly slipped to the weakest level.
How much further the pound falls may depend on how swiftly Egypt returns to talks with the IMF. No date has yet been set. One Cairo-based currency trader predicted an IMF deal would be in place in March or April, and said this would help the pound settle around 6.90 to 7.15.
In the meantime, further aid from Egypt's friends, and other stratagems, may keep foreign exchange reserves at minimally sufficient levels. Turkey transferred $500 million to Egypt earlier this month, while the finance ministry may offer more issues of dollar-denominated, one-year bills to sop up some of the private sector's hard currency holdings.
Jackson said the pound was expected to fall to 7.50 in an orderly manner, assuming an IMF deal was reached. He added, "Even if a deal is ultimately agreed but if it takes longer than expected, then we may see more pressure."