• NIR fell to a 15-month low on debt servicing … Egypt’s Net International Reserves (NIR) dropped USD2.1bn in July to a 15-month low of USD15.5bn as the country had large debt payments, which the Central Bank of Egypt (CBE) stated was USD2.2bn (see Fig. 1). Merchandise import cover fell to 3.3 months from 3.7 months in June, while total import cover (i.e. including imports of services) fell to 2.8 months compared to 3.2 months in June.
• …and absence of UAE deposit The drop confirms that Egypt has not received the promised USD2bn deposit from the UAE back in April or any other one-off handouts from the GCC. Officials initially said the deposit would be received in May, but as demonstrated by the numbers there remains no sign of the deposit, which was supposed to balance out the outflows from the large debt service payments in order to keep reserves stable at USD17.5bn.
• Further pressure on EGP, but IMF loan being discussed The drop in reserves puts further pressure on the USD-EGP as merchandise import cover approaches the 3.0-month critical mark. The parallel rate has largely been stable in the past few days at EGP12.40/50, falling from an all-time high of EGP13.20 in mid-July. Authorities are already finalising a loan agreement with the IMF, which remains one of the few ways left to replenish reserves in the near term amidst weak balance of payments dynamics. We believe authorities are preparing for a major adjustment of the EGP once the IMF loan is finalised probably within the coming month.

Mohamed Abu Basha