• Foreign reserves rise to USD17 billion in April Egypt’s Net International Reserves (NIR) recorded a surprising increase of USD450 million in April, rising to seven-month high of USD17 billion. The increase was the result of higher holdings of foreign currencies - the value of the Central Bank of Egypt’s (CBE) gold holdings was nearly unchanged (see Fig. 2). Detailed NIR accounts show the increase was driven mostly by deposits placed at local banks, which jumped cUSD1 billion (see Fig. 3). The increase could be driven by yet further accumulation of foreign liabilities as was the case in previous months, a trend that maintained reserves nearly stable since November; however, we need to await the release of reserve money data – towards the middle of the month – for more clarity about the factors behind this surprising increase in NIR.
• Is this a read-through for improved FX dynamics? Unlikely Egypt is still facing a challenging BOP position, and recent weakness in the parallel market rate is a testimony to FX shortages. In this respect, we do not see the April increase in headline reserves as hinting towards an improved FX position – the increase is not necessarily replicable. Foreign investors have been net purchasers of local equities recently, but only of USD180 million in the past two months; anecdotal evidence suggests that their contribution to the local debt market remains minimal.
• Reserves yet to be boosted by new round of GCC deposits The latest UAE pledge of USD2 billion in deposits at CBE is said to be received sometime in May. We note, however, that upcoming debt servicing means the sustainable net increase in reserves would be minimal, given than Egypt has debt repayments of USD1.7 billion in July. Some talks have also recently been circulating about a potential USD3 billion deposit by Saudi Arabia, though there has been no official confirmation.
• EGP remains under pressure; injecting liquidity is key for stability The rise in the NIR figure may indeed come as a positive surprise, but one that is unlikely to reduce pressure on the EGP’s parallel market rate, in our view, in light of existing FX shortages. The parallel rate crossed the EGP11 mark against the USD on Tuesday, according to Reuters. The FX market is, therefore, only likely to react to a sustainable rise in FX liquidity. A potential large FX auction in the short term may help ease the recent rise in pressure on the parallel rate.

Mohamed Abu Basha