Trade deficit, currency crisis push Egypt’s net reserves further down

File Photo: Saudi Arabia said it will deposit $2 billion in Egypt’s Central Bank.( Photo Reuters)

File Photo: Saudi Arabia said it will deposit $2 billion in Egypt’s Central Bank.( Photo Reuters)

Egypt’s reserves remain critical despite recent financial support from oil-rich Gulf countries

Egypt’s net foreign reserves fell by $438 million in August to $18.096 billion, the Central Bank of Egypt stated on Tuesday.

As of the end of July 2015, net reserves had stood at $18.5 billion, with a drop of $2.4 billion in June, which was exacerbated by a $667 million debt repayment to the Paris Club of creditors nations.

Currency reserves remain at a worrying level for the economy despite a recent increase in aid from Arab Gulf countries aimed at shoring up Egypt’s net reserves. Fifteen billion dollars is typically considered a safe level as it covers three months’ worth of imports.

“Egypt’s growing trade deficit and currency crisis are behind the low reserves rate,” said Eman Negm, an economist at Prime Holding. Saudi Arabia, the United Arab Emirates and Kuwait have provided Egypt with billions of dollars in aid since the 2013 ouster of Islamist president Mohamed Morsi.

“The government’s recently announced plans to re-enter the international capital market could eventually boost Egypt’s reserves. Relying solely on Gulf aid is unsustainable,” Negm added.

Egypt relies on the Suez Canal and tourism as its main sources of foreign currency, two areas strained by the political instability that followed the 2011 uprising.

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