CAIRO: Official data released by the Central Bank of Egypt (CBE) showed Egypt's net international reserves (NIR) up 4 percent to $32.9 billion in August from $31.6 billion in July 2009, Reuters reported. Egypt's net international reserves have declined steadily from a peak of $35 billion in October 2008 as capital flows and foreign currency revenues from tourism, the Suez Canal and remittances dried up. This positive change was unexpected by local analysts given the effects of the global recession. "We were expecting the NIR to decline gradually as the balance of payments deficit widened, on the back of a growing current account deficit and lower capital flows. We had expected NIR to reach $29 billion in fiscal year 2009/10, wrote Beltone Financial in a research note. Despite this significant gain, reserves remained down 5.5 percent year-on-year for August, which saw reserve levels of $34.8 billion in 2008. The detailed data released by CBE revealed an increase in foreign currencies and special drawing rights (SDR). SDR is an International Monetary Fund (IMF) international reserve asset created to supplement member countries' official reserves. Simon Kitchen, an economist at Cairo-based investment bank EFG-Hermes, says that while SDR levels played a major role in the month on month rise, other factors linked to Egypt's economic recovery have contributed to the improvement in foreign currency reserve levels. "The increase in foreign currency is mostly a result of the SDR injection, but we've also seen a stabilization in the balance of payments due to the August tourism high season. Non-official reserves are also up $300 million due to investment in the stock market and t-bills, he said. According to Beltone Financial, the increase in SDR levels prompted by IMF intervention provided the main impetus for the rise in foreign currency reserves. SDRs rose from $106 million in July 2009 to $1.2 billion in August. "Had SDRs not increased as such, gross international reserves would have increased slightly with the rise in the foreign currencies balance, wrote Beltone. At the end of August, the IMF began the first phase of a plan to inject $283 billion into the world economy to boost liquidity in international markets. Egypt was given $1.1 billion under the first phase of the initiative. An additional $98 million will be injected during the second phase of special allocation beginning mid-September. Egyptian Finance Minister Youssef Boutros-Ghali chose to retain the funds received as international reserves to boost Egypt's foreign reserves in the absence of a local liquidity crunch. With the IMF initiative firmly in place and already generating positive effects on the local economy, Beltone Financial is confident that healthy levels of NIR are here to stay. "With the addition of the SDRs and an improvement in foreign currency revenues, we believe the NIR will not witness a quick erosion and could stabilize at near current levels, Beltone wrote. For his part, Kitchen believes that stabilization in the balance of payments will pave the way for a recovery of reserve levels into the coming calendar year. "Overall the balance of payments seems to be stabilizing and we can expect small month on month increases in NIR for the rest of this year and into 2010, he concluded.
