CARIO: The ongoing unrest in Egypt has sent the Egyptin pound to its weakest point against the US dollar since January 2005. The mass protests against the military army have wracked the Egyptian economy, amid an already rocky business climate. The Egypt pound has touched 5.992 to the dollar, compared to 5.8 before the January uprising against Mubarak. Central bank foreign reserves tumbled to $22.1 billion last month, from $36 billion in January. In October alone, Egypt's reserves fell $1.93 billion, the biggest drop since April, Central Bank data revealed. Recent social spending is beyond the country's means, and the budget deficit will reach 10 % of GDP in 2011. This currency crisis is directly linked to social upheavals within the country, as foreign investment inflows, tourism revenues dry up and the demand for dollars among local companies and individuals grows. “The pound is under a lot of pressure due to the political unrest,” said one Cairo-based trader. “Till now the CBE is still defending the pound but I ask myself to what extent and at what cost? The coming few days and weeks will reveal the answer.” Raza Agha, senior Middle East and North Africa economist at RBS, estimates that Egypt's reserves are large enough to cover about 4.5 months worth of Egypt's imports. But liquid reserves, currencies, deposits and securities that can be mobilized to defend the pound, total approximately $16.1 billion or 3.2 months of imports, she calculated. “Egypt's current reserve levels are not alarming but are very situation-dependent and vulnerable to capital flight” she said. Egypt has been struggling to keep its currency from collapsing during the course of the revolution, but the ongoing unrest continues to threaten the economy as tourism revenues fell dramatically causing a major hole in the country's budget. Egypt turned down a loan offer from the International Monetary Fund (IMF) this past summer, to keep from further indebting the country. But in order to keep a full-blown crisis away now, its immediate priority may be to go back to the IMF and take the $3.2 billion 12-month facility it had previously turned down. However, even this aid looks like a paltry sum compared to the size of the current economic crisis. BM
