Egypts foreign reserves in free fall

“Despite the government’s best efforts, the rattle of money-counting machines can again be heard in Egypt’s back alleys, where traders sell dollars at a premium to the official rate. The government devalued the pound to match the black-market price earlier in the year, thereby wiping out the illicit trade. But demand for greenbacks is outpacing supply once more, leaving the government short of cash and putting the traders back in business”, writes the Economist.

Egypt’s foreign reserves fell to $16.4 billion in September, enough to cover about three months of imports—the minimum the IMF considers advisable. But Egypt is not attracting many dollars at the moment. Years of political turmoil have hit tourism and foreign direct investment (FDI), which amounted to $6.4 billion in the last fiscal year (running from July until June). The government hopes for $10 billion in FDI this year—wishful thinking, analysts say.

At the same time, demand for dollars is rising. Egypt has run annual trade deficits for over a decade. Lately they have grown. Although the bill for oil has come down along with the price, Egypt still imported $12.3 billion-worth last year. It also spent $48.5 billion on other imports, including wheat, cars and metals. “This is where the pressure comes from,” says Allen Sandeep of Naeem Holdings, an investment firm. The country’s exports, totaling $22 billion last year, don’t match up.

No wonder, then, that the current-account deficit is expected to hit $20 billion this year. In addition to FDI, Egypt has financed such shortfalls in recent years with handouts from Gulf states eager to support its military regime.