Egypt Forex Reserves affected by imports, gold prices
Large forex auction to finance imports and revaluation of Egypt's gold reserves to reflect plunging world prices explain first reserves drop in months
Deya Abaza, Sunday 7 Jul 2013
Gold bars weighing between 50 grams and 1 kilo (Photo: Reuters0
The first drop in Egypt's foreign currency reserves in two months can be attributed to an exceptional forex auction as well the drop in world gold prices.
Egypt’s net international reserves (NIR) dropped in June to $14.9 billion, the central bank announced on Sunday.
Foreign reserves had risen in April for the first time since October 2012 after hitting a record low of $13.4 billion, and they continued their upturn in May during which $16.04 billion was recorded due to injections of foreign aid from Turkey, Qatar and Libya.
But in late May, the Central Bank of Egypt offered $800 million in an exceptional foreign exchange auction for banks to finance commodity imports including tea, meat, poultry, fish, wheat, oil, milk, beans, butter and corn, as well as capital goods, spare parts, intermediary production components, raw materials and pharmaceutical and vaccine components.
The latest $1.12 billion drop in forex reserves, which include gold, also resulted from the Central Bank's revaluation of the country's gold reserves in June – in the context of an international gold price fall – Hani Genena, research head at Pharos Holdings, told Ahram Online.
Gold prices had fallen below $1,200 an ounce by the end of June, their lowest since August 2010, after the US Federal Reserve announced a scaling back of its bond-buying program following improvements in the US economy.
Investors have turned to gold in the global financial crisis of the past years as central banks worldwide lowered interest rates to boost economic growth.
According to Genena, Egypt's revaluation reveals that its gold reserves fell by some $800 million in June, which affected foreign currency reserves.
Egypt's net international reserves have fallen by more than half since the 2011 revolution, which scared off tourists and investors – both considered main sources of foreign currency for Egypt. In January 2011, Egypt's net reserves stood at some $36 billion.
Bolstered by recent injections of foreign aid, Egypt's net international reserves rose for the second consecutive month to reach $16.04 billion by the end of May, the Central Bank of Egypt (CBE) announced Thursday.
In April, Libya deposited $2 billion at the CBE in an effort to support Egypt's faltering economy. And in May, Qatar deposited another $3 billion at the central bank, which it pledged to invest in Egyptian treasury bonds at an expected rate of interest of 3.5 percent.
Later the same month, Turkey announced it would increase its $1 billion credit line to Egypt by $250 million, in a move that is expected to maintain the upward trajectory of Egypt's foreign reserves.