The Egyptian Central Bank announced on Tuesday that foreign exchange reserves have increased by more than $2 billion dollars, recording $38.201 billion after declining by a large percentage last month.

The Egyptian regime’s supporters usually promote the rise in foreign reserves in the country as a new achievement for the Egyptian economy, but observers have warned that these increases are in fact fake increases because they are due to loans. The new increase in foreign reserves comes in light of Cairo resorting to borrowing at record rates. The reported increase in the reserves is almost equal to the value of the loan that Egypt recently obtained, about $2.77 billion, from the International Monetary Fund (IMF). This loan was approved in parliament in the middle of last month, more than a month after it was received. Cairo also obtained another $5.2 billion loan from the IMF.

Egypt has expanded its external borrowing, bringing the total of its direct loans, or through offering international bonds or through initial approvals from international financial institutions, to about $13 billion. In a statement on May 22, the Finance Ministry announced the launch of international bonds that raised $5 billion in the largest offering in the country.

Through foreign debts, Egypt aimed to raise the country’s foreign exchange reserves, which fell by $9.5 billion in just three months. According to the official data announced by the Central Bank of Egypt, foreign reserves in Egypt reached about $36 billion at the end of last May, compared to $45.5 billion at the end of February 2020.

The repercussions of the coronavirus pandemic have deepened economic damage to the country, whose finances over the past six years have relied on borrowing in an unprecedented way, to fill the worsening budget deficit. The budget deficit increased in Egypt due to spending on huge projects adopted by General Abdel Fattah al-Sisi, foremost of which was the creation of the new administrative capital and the construction of the new branch for the Suez Canal. Economists say that these projects, on which al-Sisi spent billions of dollars, are not feasible, and that al-Sisi insisted on starting them for political purposes.

Since mid-2014, al-Sisi’s regime relied on external borrowing in an unprecedented way in the country’s recent history, attracting hot foreign funds to purchase government debt and speculation on the stock exchange.

Economists see that this policy aimed to provide foreign liquidity to finance huge projects lacking economic viability, such as the establishment of the new administrative capital in the heart of the desert, east of Cairo, which includes a huge presidential palace, government headquarters and luxury housing complexes, and digging a new branch of the Suez Canal, as well as an attempt to create a positive impression of the Egyptian economy.

Al-Sisi announced at the beginning of the corona crisis the monitoring of EGP 20 billion ($1.25 billion), to support the stock market and to prevent it from falling after foreigners left.

However, the Central Bank revealed in a statement, on April 7, a big withdrawal from foreign reserves to partially cover the exit of foreign investment portfolios, and to meet the needs of the domestic market in hard currency to import strategic goods, as well as payment of external debt service obligations.