Net International Reserves were largely stable in December, rising only USD22 million to USD16.4 billion, according to data released by the Central Bank of Egypt (CBE). All components of reserves were stable, with import cover remaining also stable at 3.6 months.       Funding of portfolio investors backlog remains a mystery: With NIR remaining stable and tier II reserves rising another USD0.2 billion in December following November’s USD0.6 billion increase, the sources of the USD0.55 billion in cash utilised to clear foreign portfolio investors backlog on 1 December remains unclear. The ailing current account position is no position to provide funding with the deficit running at cUSD4 billion (1.3% of GDP) a quarter throughout 2015. One likely scenario includes the build-up of more, unannounced liabilities; CBE’s net foreign asset base is increasingly moving into the red, with latest available figures showing a negative NFA position of USD1.2 billion as of November. Others include benefiting from de-dollarization by public institutions.   Reserves to be boosted by WB, AfDB loans: NIR is likely to be boosted in January, with the inflow of USD1.5 billion loans from the World Bank and African Development Bank though the net increase is likely to be lower in light of a Paris Club installment worth cUSD700 million. The loans should have hit CBE’s account in December, but faced some delays regarding final approvals. Visibility for boosting reserves beyond that point remains weak. Options include GCC financial support, an IMF loan, issuing Eurobonds or more loans from additional international financial institutions.   Announced Saudi support still lacks the cash: News yesterday about a USD3 billion support package from Saudi Arabia could be an additional source of support though it was notable that direct cash support (deposits at CBE or purchasing of domestic debt) was also absent from this negotiation round. Minister of International Cooperation said Saudi Arabia would supply Egypt with USD1.5 billion loan for projects in Sinai, USD1.2 billion to finance fuel purchases and a USD0.5 billion grant for buying Saudi exports and products. The timeline of disbursement of the USD1.5 billion loan remains unclear.   Authorities showing bias for import rationalisation: In addition to raising funding to boost reserves, authorities are keeping an eye on the import bill. Recent directives, by both the CBE and the government, aim to rationalise a stubbornly high import bill. This includes a recent directive by the Ministry of Industry and Trade which created a registry for manufacturers of a number of imported finished consumer goods, requiring additional paperwork to ensure quality and origin of these products. We see this as a realistic approach by policymakers in light of poor current account dynamics; inflows from key sources of foreign exchange income (tourism, exports, remittances and Suez Canal) are on a declining trend. Even in the case of a potential devaluation, the expected increase in portfolio inflows is not likely to meet the expected bounce in imports, in our view, in addition to being quite a volatile sources for funding the current account deficit.   Maintain view on EGP: We maintain our view that a potential devaluation of the EGP is not likely to materialise imminently, but more so a few months into 2016. A devaluation would be conditional on building a liquidity shield, in our view, one that enables the CBE to manage the process and instate stability. Thus far, authorities are still building such shield with ongoing negotiations with GCC countries. One important indicator for the potential devaluation we would be keeping an eye on is any negotiations with the IMF for a potential loan, which we see as one of the few remaining options to provide funding and ensure a sustainable balance of payments position. (Central Bank of Egypt, Mohamed Abu Basha)