Egypt Watch

Egypt’s foreign exchange reserves lose $3.9 billion

The Central Bank of Egypt has issued a statement announcing a decline in foreign exchange reserves by about four billion dollars in one month. It decreased from 40.994 billion dollars at the end of February to 37.082 billion dollars at the end of March. According to the statement, this came as a result of the bank’s use of part of the reserve to cover the exit of foreign investments, pay the obligations of foreign indebtedness, and meet the market’s foreign exchange needs. The bank has announced a decrease in net foreign assets, reaching below harmful 50 billion pounds, representing a decline of 60 billion pounds from last January.

Macroeconomic analyst at CI Capital, Sarah Saadeh, attributed the main reason for the decrease to foreigners’ exit from the government debt market, noting that the total loss last March ranged between four to seven billion dollars. Last February, net foreign assets achieved a deficit of more than 50 billion pounds. The net foreign assets of a banking system represent the difference between the foreign currency assets of the banks, the Central Bank included, and their liabilities. A rise in assets over liabilities indicates a surplus, while an increase in liabilities indicates a deficit.

The interest rate hike is also a reason for increasing Egyptian debt securities’ attractiveness, as the pound’s depreciation is linked to an increase in the appeal of government debt securities for foreigners who inject foreign currencies into banks to buy the Egyptian pound. However, foreign lending through the purchase of local bonds and bonds is unstable due to the tendency of foreign investors to flee quickly and retrieve foreign liquidity in light of any emergency developments or actual political events.