Egypt Foreign Reserves Rise On One-Off Items

Egypt’s foreign reserves increased by $705 million in August after a fall in July, but economists said the figures were flattered by one-off items that masked a continuing drain on the country’s finances.

Net international reserves rose to $15.13 billion at the end of August from $14.42 billion at the end of July, the central bank said on its website on Sunday.

The reserves were boosted in August by a $500 million deposit the central bank received from Qatar and by the central bank’s sale of 513 million euros’ ($642 million) worth of euro-denominated T-bills.

“Fundamentally, if you exclude these one-offs, reserves actually fell by $437 million,” said a Cairo-based economist, who asked that his name not be used because the issue was sensitive. Other economists outside of Egypt voiced similar concerns.

Egypt has used up more than half its reserves to prevent its currency from weakening since last year’s popular uprising scared away tourists and investors, two of Egypt’s chief sources of foreign currency.

Economists say the continued drawdown is unsustainable, and that long-term reforms are needed to plug twin deficits in the country’s budget and balance of payments.

The Cairo-based economist said further one-off payments expected in September should increase reserves in that month, too.

Qatar has promised Egypt a total of $2 billion, and the remaining $1.5 billion is expected to be deposited with the central bank this month, Finance Minister Mumtaz al-Saeed said in August.

“You need some fundamental improvements after these one-offs,” the economist said.

Economists have called for Egypt to implement measures to reduce its budget deficit such as cutting back on government energy subsidies and have suggested it devalue its currency, which has only weakened by about 5 percent since Hosni Mubarak was ousted in February 2011.

But such moves risk angering a population that rose up last year partly because of high inflation and the widespread belief that the fast economic growth in the last years of the former president’s rule was not reaching the poor.

Egypt’s newly elected president, Mohamed Morsi, said on Monday he would not impose new taxes or devalue the country’s currency and that his government would rely instead on investment, tourism and exports to fix the economy.

Reuters