CAIRO - Egypt has suffered huge financial losses as a result of low foreign investments in the light of a security vacuum, the suspension of production in some plants, strikes, sit-ins and protests in addition to a cash reserve deficit. These factors led the Central Bank of Egypt to raise the interest on deposit revenues. Concerning the reasons behind these economic problems, Safwat Abdel-Aziz, professor of economy at Cairo University, noted that political instability and a prevailing lack of security caused a decrease in the reserves compared to the figures of October 2011. The unfavourable conditions affected tourism revenues and forced foreign investors to sell what they owned. Continuing protests could lead to a crisis in the coming months. The Egyptian pound experienced sharp devaluation, he added. If capital investors stayed away, the Central Bank would be forced to use its foreign cash reserves, particularly, after the losses hitting the Egyptian stock exchange estimated at 6 per cent. “If the Central Bank continues to pump liquidity into the local market, it will raise the demand on commodities and services without increasing production. This will in turn lead to higher prices and less purchasing power,” according to Abdel-Aziz. The Central Agency for Public Mobilisation and Statistics pointed at a 7.5 per cent inflation increase in October this year, the result of raising food prices at a rate of 8.8 per cent compared to September. Borrowing money abroad would not be the solution, as it would have a negative impact on development. Egypt's hard currency reserves fell from LE36 billion to LE22 billion in October, a reduction of $1.93 billion in only one month. According to the National Planning Institute, the total economic losses since the start of the January 25 revolution are estimated at LE45 billion ($7.5 billion). Lower exports and losses in the tourism sector reached $6 billion.The tourism sector represents 31 per cent of the gross national product. Abdel-Aziz stressed the urgency of restoring the sense of security and stabilising the economic conditions, which would also help raise the value of the Egyptian pound. Salah Gouda, Director of the Economic Studies Centre, noted that there were no new sources Egypt could use to compensate for the losses, and if cash reserves kept on being withdrawn, Egypt would face bankruptcy in ten months' time. He told the local Radio and TV magazine that the average inflation rate in the first half of 2011 had reached 25 per cent, an unprecedented figure. He added that if inflation continued to rise, Egyptian citizens would suffer terribly and their living standards deteriorate even further.
