Egypt foreign exchange reserves down $10b

The news flow has not been good. Egypt's official foreign exchange reserves fell nearly $10 billion (Dh36.7 billion) in the first six months of the year from $36 billion to about $26 billion at present. The country's debt auctions are regularly undersubscribed, demonstrators have been back on the streets and, to make matters worse, the prime minister has been taken to hospital suffering from exhaustion. In addition, many remain concerned that Cairo has turned down a $3 billion International Monetary Fund support package in favour of promises of aid from Arab countries. However, some think that, economically, the worst may be behind the Arab world's largest state. Exotix, the emerging market specialist, says there are no "funding cliffs" ahead and that Egypt's banking system can meet the government's borrowing requirements. "I would expect a lot of bumps along the way but ... they [the banks] can go on buying T-bills it's not really a problem at all," says Gabriel Sterne, Exotix economist. "The banking system is very rigid ... The rigidities work in favour in these times." Sterne says the reserves issue is critical but points to the fact that Egypt saved about $10 billion as "other reserves" after March 2009 as international portfolio investors were drawn by the attractive rates on offer. These reserves have been eaten up but they have been of assistance in the difficult times as investors fled. Those still with holdings in Egypt are in for the long haul, Sterne believes. "Almost by definition the pace of reserve decline will even out," he says. $36b: reserves at the start of the year $26b: reserves after the first half of the year From / Gulf News