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Tourism behind Egypt's biggest decline in foreign reserves since 2007

Net reserves dropped LE3 billion in three months to reach the lowest level in three years

Salma El-Wardani , Monday 4 Apr 2011
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Reserves fell to US$30.1 billion from $33.3 billion last month to reach their lowest since September 2007, according to data published today on the website of Egypt's Central Bank.

“Three billion dollars in three months is a huge decline,” Mohamed Rahmi, Chief economist of Beltone Financial told Ahram Online.

“Yet if we take into consideration the tremendous political events that Egypt has been through since January 25, the decline isn’t a concern at all.”

The stock market was closed on 30 January after the beginning of unprecedented public protests that ultimately led to President Hosni Mubarak's resignation. It only reopened on 23 March.

Demonstrations caused a 16 per cent drop in the stock market and a loss of around LE70 billion (US$12 bn) in the last two sessions before closure.

“The decline in Egypt’s foreign reserves is mainly due to the slowdown in the tourism sector, as well as in exports, ” says Rahmi.

Tourism, along with the Suez Canal revenues and the exports sector, are the main sources of Egypt’s foreign reserves.

Rocked by civil unrest, the tourism sector was shaken with many governments evacuating their citizens and many others advising against travel to Egypt, forcing airlines and tour operators to reduce flights or cancel operations altogether.

Russia, which provides the country with the largest number of tourists annually, officially lifted its ban on travel to Egypt two days ago but still advises against travel to Egypt or Tunisia.

Rahmi remains optimistic, saying that losing three billion dollars after such a massive uprising means "we’re on the right track”.

Egypt's recent foreign assets figures mean Egypt's imports are covered for only seven months, eight weeks below the country's nine month safety margin.

"This isn't exactly alarming, because as receipts are curbing, consumption (imports) are also declining, so things will be balanced," explains Rahmi.

“It’s going to take some time, but since both liabilities and assets are kind of weakened, there isn't much chance of heavy withdrawals from foreign assets,” he says “I expect Egypt’s net reserves will recover by the third quarter of 2011 when the peak season for tourism begins”

Reserves previously peaked in October 2008 at $35.03 billion. They slid to as low as $31.19 billion in April 2009 before beginning a steady recovery.

 

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