Fragile Egypt under pressure in paying off huge foreign debts



Egypt's foreign currency reserves might slide more as the North African country is set to pay back around two billion U.S dollars of its foreign debts this year, economic experts warned on Wednesday.

"Egypt's central bank is bleeding foreign currency reserves as the country is paying off too much debt installments," Professor Ehab El-Desoky, Director of the Center for Research and Consultancy at Sadat Academy, told Xinhua.

This will have grave consequences on the already fragile Egyptian economy that urgently needs to be repaired, he added.

On Tuesday, Egypt's Central Bank announced that net international reserves (NIR) fell to 15.33 billion U.S. dollars at the end of December from 15.88 billion U.S. dollars in the previous month.

In November last year, reserves recorded more than one billion dollars slide after the government returned a 2.5 billion dollars deposit to Qatar upon an official request from the wealthy Gulf state.

The government will also pay back 500 million dollars to Qatar in the second half of this year.

Qatar helped support the Egyptian economy following the 2011 revolution that toppled former president Hosni Mubarak, but ties have worsened after the ouster of Islamist President Mohamed Morsi in July 2013.

Egypt is also set to repay a 700 million dollars six-month premium on the foreign debt owed to the Paris Club of Creditor Nations later this month.

Another 700 million dollars will be paid in July to Paris Club, a financial body comprising twenty of the world's largest economies.

El-Desoky pointed out that this dramatic slip will add tremendous pressure on Egypt's newly elected political leadership that has been struggling to stabilize and improve the country's bleak ailing economy.

"Decline in cash reserves will definitely have serious consequences such as difficulties in servicing debts, purchasing and management of strategic goods and services as well as rising the price of the dollar versus the Egyptian pound in the black market," he explained.

Therefore, El-Desoky said, the government should set a strategic plan to avoid more inflation as Egypt's Suez Canal and tourism sector, the country's main sources of foreign currency, are not functioning well in light of the current unstable security and political situation.

"Since investment, tourism and other major national projects like the Suez Canal projects cannot bring foreign currencies in a short period of time, non-profitable grants from allied countries can solve the problem unless the economy recovers," he said.

Egypt's reserves dipped sharply after the 2011 revolution, but were lifted in 2013 when Gulf Arab states gave billions of dollars in aid to Egypt after the ouster of Islamist president Mohamed Morsi.

Back in 2011, before the anti-Mubarak uprising, Egyptian reserves of foreign currency were valued at almost 36 billion dollars.

Foreign reserve allows the government to purchase basic goods and oil products. They are also to pay premiums and interest on foreign debts.

Egypt's foreign reserves witnessed a sharp decline after Mubarak's ouster in 2011, when they were valued at 35.8 billion.

Faika al-Refay, deputy governor of Egypt's central bank, appears more optimistic as she believes the next few months will witness an improvement in the economic situation which will consequently increase the hard-currency reserves.

"The government has done enough to attract foreign investment which will certainly increase Egypt's foreign currency reserves. It has modified its investment law and the security situation has significantly improved," she said.

"Tourism is notably improving as the country is regaining security rapidly and successfully," she said.

She added that the major economic conference that will be held this March to support the country's economy as well as the new mega project of the Suez Canal are expected to attract large investments that will bring millions in cash to support Egypt's foreign reserves.

"Investment is the best solution to increase foreign reserves. The investments of Saudi Arabia and other Gulf states in Egypt would also encourage investors to start business here," she added.

Since the ouster of Islamist president Mohammed Morsi last year, Saudi Arabia and the UAE have backed Egypt's economy with around 20 billion U.S dollars in the form of loans and grants.

"I believe that Egypt is regaining investors' trust and maintaining its position as the largest market in the region which means its reserves might double in a short period of time," al-Refay said. Enditem