By Patrick Werr / Reuters
CAIRO: A decline in Egypt’s net foreign reserves slowed dramatically in February, reducing pressure on the central bank to allow a rapid devaluation of the country’s currency.
Foreign reserves fell by only $636 million after having tumbled by close to $2 billion in each of the previous four months. They now stand at $15.72 billion, well under half what they were before the popular uprising last year.
The central bank has been drawing down its reserves as it defends the Egyptian pound, which has lost only around 3.6 percent of its value against the dollar since the uprising sparked a year of political and economic turmoil.
Nada Farid, an economist with Beltone Research, said she expected the draw-down in reserves to remain relatively slow over the coming few months.
“We didn’t have any debt repayment obligations to be repaid this month, we’re still witnessing a relative improvement in the political environment and the amount of T-bills still held by foreigners is quite limited, so the decline rate has been improving,” she said.
“So we’re expecting another $0.7 billion decline for next month as well,” to around $15 billion, said Farid. “I think the decline rate will continue to improve.”
Egypt’s turmoil worsened unemployment and widened its budget and balance of payments deficits by scaring away tourists and investors, two of the country’s main sources of foreign exchange.
“We expect the central bank will stop using its reserves to defend the currency after they reach $15 billion, because it represents the critical level of three months of import cover,” Farid said.
Foreign investors have liquidated treasury bill holdings over the last year as the bills matured.
Egypt said in January it had asked the International Monetary Fund (IMF) for $3.2 billion to help it plug its balance of payments deficit, saying it wanted the money as soon as possible and hoped an agreement would be signed within weeks.
The IMF said any agreement would take two to three months.
Farid said Egypt paid interest and principle on Paris Club loans and other debts in January, causing an exceptionally large drawn-down on reserves in that month.
Economists have blamed part of the October, November and December declines on uncertainty ahead of the country’s first parliamentary since Hosni Mubarak was driven from power and on jitters following an outbreak of street violence.