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Decline in foreign currencies revenues weighs on Egypt's foreign exchange reserves Egypt's international reserves witness their biggest monthly decline in over 6 years to reach $33.3 billion
Egypt's foreign exchange reserves fell by $1.686 billion from the end of January to the end of February of this year to reach $33.321 billion, its lowest level since August 2009, which makes it the sharpest monthly contraction in six years. The foreign currency reserves declined for the second month consecutively since the beginning of the Egyptian revolution, losing more than $2.6 billion over January and February. "It was expected, given all the sources of foreign currency that witnessed restriction, especially tourism", says Hani Guenena, head of research in Pharos investment bank. "Falls in tourism receipts and the Central Bank of Egypt's (CBE) intervention on February 8th to control the depreciating Egyptian pound against the US dollar over its first days of trading would have also compounded the fall in the reserves' position in February 2011", said the statement by Beltone Financial investment firm. Guenena explains that the international reserves at the CBE are the second line of defence after what specialists call the "hidden reserves", which refers to the foreign assets the CBE possesses in commercial banks. "This decline of the CBE's reserves means that the first line of defence has been under pressure.”” “”What is most worrying is that the pressure continues", warns Guenena, a worry that can be underlined by the rise in the prices of food and oil in the international market. However Guenena, like Beltone Financial, still has some hope. "Tourism should recover quickly and the government is seeking foreign aid, and those are two important source of foreign currency. A good flow will make things better." Hani Adry Demian, Assistant Minister of Finance, said that rate of room occupation in Egyptian hotels reached 16 per cent, compared to 4 per cent in the first weeks of February. This could be a sign of a faster recovery than expected. "We believe that Egypt's net international reserves remain at a comfortable level and can cushion the short-term implications of the current political unrest," argues Beltone. "The key to the CBE's comfortable management of the current events, however, will be the duration of the unrest and the time it takes to restore stability to the economy", Beltone's analysts conclude. However, many experts believe next month will witness another decline in Egypt's international reserves.
