Egypt seeks financial aid amid political row

CAIRO/LONDON - Reuters

Egypt’s stock market opened 1.5 percent higher yesterday. Right after the military coup on July 3, the bourse had soared by more than 7 percent. REUTERS Photo

Already-sinking Egyptian economy faces a new challenge amid political turmoil despite the stock exchange’s persisting growth indicating investor optimism.

The governor of Egypt’s central bank, Hisham Ramez, flew to Abu Dhabi yesterday, officials at Cairo airport said, following Egyptian media reports Cairo was seeking financial aid from Gulf states after the ousting of Islamist president Mohamed Mursi.

Egypt’s budget and balance of payments and have reached a state of crisis in the two and a half years of political and economic turmoil since veteran leader Hosni Mubarak, was toppled in a popular uprising in 2011.

The United Arab Emirates pledged $3 billion in aid for Egypt in 2011 that has yet to be delivered. In May of this year it said it would take time for the money to be transferred.

Qatar has lent Egypt more than $7 billion since Mursi was elected president a year ago, but other Gulf countries have remained aloof. Analysts said they were wary of Mursi’s Muslim Brotherhood.

Stocks remain high

Despite the current turmoil, Egypt’s stock market opened 1.5 percent higher yesterday, as investors cheered Mursi’s ouster.

In the aftermath of the military coup, stock exchange rapidly rose by 7.56 percent. And prior to the military coup, between June 30 and July 4, stocks saw a 5 percent rise even with heightened expectations that the army might takeover control, according figures reported by the Anadolu agency.

While stock and bond markets have cheered the ouster of Mursi and Egypt’s debt insurance costs have tumbled, data shows that financial risks are about to escalate.

The central bank’s net hard currency reserves, which a country needs to pay for imports, are in negative territory if upcoming short-term obligations are included, indicating a looming funding crunch for Egypt unless it quickly accesses external aid.

The central bank has run through two-thirds of its cash reserves in defending the Egyptian pound since early 2011 as foreign investment dried up and the economy reeled after the uprising that toppled former ruler Hosni Mubarak. It has been unable to replenish them other than with top-ups provided by aid from Libya and Qatar.

Gross international reserves now stand at around $15 billion, barely covering three months of imports, but even that figure is misleading, data shows. For one, it includes illiquid assets such as gold, and second, upcoming contractual obligations far exceed the amount of hard currency the bank holds in its buffers. According to data from the International Monetary Fund and Bank of America/Merrill Lynch, reserves held in easily convertible currencies are more than $5 billion in the red if measured against the central bank’s forward obligations.