Army official says Egypt foreign reserves plunging, in latest controversial speech

Major General with a history of gloomy predictions claims just $15 billion will be left in Egypt's central bank by January

Egypt's foreign reserves will plunge by a third to US$15 billion by the end of January and its budget deficit soar, an army official said on Thursday, in his latest grim and controversial pronouncement on the country's economy.
"By end of January of next year foreign reserves will go down to $15 billion dollars," Major General Mahmoud Nasr, a senior army financial official, said at a briefing on the economy.
"Only $10 billion dollars will be available. That is only enough for 2 months (imports cover)," Nasr said, adding that $5 billion was already committed in payments to foreign investors or for other obligations.
In May, Nasr said Egypt faced bankruptcy and a "revolution of hunger" due to continual protests. His financial predictions were later contradicted by official statistics.
On Thursday afternoon, a Central Bank official told Reuters that Egypt's foreign reserves fell $1.87 billion in November.
Nasr is assistant for financial affairs to Field Marshal Mohamed Hussein Tantawi, the head of the ruling army council.
The central bank put reserves at $22 billion at the end of October, down $2 billion from a month earlier and showing a faster fall than previous months. Economists said even that level left limited firepower to cope with a looming currency crisis.
Reserves have tumbled since the uprising that toppled Hosni Mubarak as foreigners have fled and tourists packed their bags, hurting two of Egypt's main sources of hard currency.
The current finance minister has said Egypt is ready to seek IMF funds again, but Nasr reflected army discomfort with borrowing from the IMF, saying that such funds came with conditions and led to questions over sovereign policy issues.
Nasr said the deficit in financial year 2011/12 was set to climb from the LE133 billion originally forecast by the government, which represents 8.6 per cent of gross domestic product (GDP).
Nasr said the deficit would now climb to LE167 billion in 2011/12, a level economists said would represent roughly 11 per cent of GDP.
"There are several solutions [to dealing with the deficit]. One of them is reviewing subsidies, particularly petrol subsidies. We prefer not to borrow money from abroad. The loans come with strings attached that undermine state sovereignty," Nasr said.
Economists have questioned the ability of Egyptian banks to meet the shortfall without foreign funds. Fuel subsidies represent 20 to 25 per cent of total state spending.
"Refusing external financing of the deficit does not seem to be an economically sound decision at the moment," said a Cairo-based analyst.
"This is worrying to say the least, especially given the official's statement regarding the expected state of foreign reserves at the end of January."
Nasr confirmed that negotiations for cash from Gulf Arab states had so far only yielded $1 billion in budgetary support. "We only received $1 billion from the Gulf, Saudi Arabia and Qatar. There has not been more money coming to Egypt," he said.
Chief economist at Pharos Holding, Hany Genena told Ahram Online the prognosis regarding Egypt's reserves was "absolutely realistic".
"The figures are quite easy to predict. The government already knows how much it needs to import within the next two months in terms of wheat and other essentials," he said, admiting the depletion was "more aggressive" than expected.
"They can also calculate how much the private sector will import by checking the letters of credit they have deposited in the banks," he said.
Nasr has form when it comes to gloomy pronouncements about Egypt's economy.
In May, the Major General warned of an economic crash if Egypt's wave of protests and industrial action continued, citing inaccurate data about the country's economic performance.
He claimed the Egyptian poverty rate had reached 70 per cent -- up from 40 per cent before January -- and voiced concerns about a "revolution of the hungry".
He also said during the same press conference that foreign investment was "zero" and said that, barring a dramatic development, Egypt's foreign reserves would run dry within six months.
In another prediction, Nasr said Egypt's budget deficit could reach LE1,290 billion by the end of the 2012 financial year, almost 10 times the figure predicted by then finance minister Samir Radwan.
The Central Bank had to issue a statement shortly after Nasr's speech, reassuring Egyptians about the level of foreign reserves.
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