Egypt’s foreign reserves on the rise as economic indicators show growth

Foreign reserves at the central bank totalled $38.2 billion at the end of January, the highest in Egypt’s history.
Sunday 18/02/2018
A man counts US banknotes at a money exchange office in Cairo.            (Reuters)
Counting stock. A man counts US banknotes at a money exchange office in Cairo. (Reuters)

CAIRO - Behind the latest rise in Egypt’s foreign reserves has been a successful series of economic reforms in the country that led to a marked decrease in imports and an increase in exports, economists said.

The reserves are expected to rise further as Egypt’s monetary authorities move ahead with reforms and economic indicators improve.

“Measures taken by the government in the past months to increase exports and decrease imports are paying off, which is reflecting on foreign currency reserves in general,” said economist Amr Hassanein. “There is an urgent need for maintaining the same measures to ensure that the reserves will keep rising, which will reflect on the economy as a whole.”

Foreign reserves at the central bank totalled $38.2 billion at the end of January, the highest in Egypt’s history. In December 2017, the reserves were $37.2 billion, 52.6% more than the reserves registered at the central bank a year earlier.

The rise in Egypt’s foreign reserves surprised economists, particularly because the country had to pay $30 billion in financial obligations to foreign banks, creditors and foreign petroleum companies working in Egypt in 2017.

Egypt will pay an additional $12 billion in financial obligations during 2018.

Egypt raised exports and decreased imports by stimulating domestic production, raising customs duties on imported goods and imposing anti-dumping measures on some imported commodities.

In 2017, Egypt’s trade deficit fell 26%. It is expected to move down further in the months to come.

The drop in the deficit will mean that the $5 billion Egypt spends annually on importing goods will decrease. This will also mean that more foreign currency reserves will stay at the central bank, making Egypt more financially secure, economists said.

Foreign currency reserves at the central bank are now enough to cover imports for almost eight months. “These improving economic indicators will mean that Egypt will spend less and earn more,” said Hala Abou-Ali, an economics professor at Cairo University. “Apart from the imports and the exports, the tourism and energy sectors are witnessing great developments, which bodes well for the future of the economy.”

Egypt’s tourism sector has started picking up after almost two years of poor performance. The slump was induced by a series of flight suspensions to Egypt by major tourist markets, particularly Russia, the United Kingdom, Germany and Italy, after the bombing of a Russian passenger plane over Sinai in late 2015.

Last December, Russia said it would resume direct flights to Egypt, perhaps leading the reversing of suspensions by other countries.

Revenues from tourism were $7.6 billion in 2017, compared to $3.4 billion the year before. With a new minister and new tourism marketing strategies in place, Egypt hopes that revenues from tourism in 2018 will surpass those registered in previous years.

The start of production at Egypt’s offshore Zohr gas field is also expected to ease pressures on Egypt’s energy needs.

Egypt spends $2 billion every year to import liquefied natural gas. By the end of 2018, Egypt’s natural gas production should be enough to satisfy domestic needs and transform the country into an energy exporter by the end of 2019, Petroleum Ministry plans state.

“This means that we will not only save the $2 billion spent on gas imports every year but will expect billions of dollars in revenues from the exports,” Abou-Ali said.

Despite the positive indicators, Egypt’s budget planners remain in a tough position as they try to raise international reserves, economists said. One of the problems planners face is how to keep the lid on the national borrowing craze, which put significant pressure on the state budget over the past two years.

The rise in the reserves was made for the most part in 2017 by loans and returns from bonds sold by the Egyptian government in international markets. Bonds sold by the government brought the national treasury $7 billion.

In the same year, Egypt received $1.65 billion in loans from the World Bank and the African Development Bank.

In December 2017, Egypt received $2 billion, the third tranche of a $12 billion loan agreed with the International Monetary Fund.

“Borrowing will put more pressures on the state budget,” Hassanein said. “This is why we need to limit it as much as possible or debt services will eat up any expected increase in the international reserves and national revenues.”