The Story Behind Egypt’s NIR Increase in February 2014

Dissecting NIRs

Egypt NIRThe Central Bank of Egypt (CBE) announced on March 5, 2014, that Egypt’s Net International Reserves (NIRs) increased by USD 202 mn to reach USD 17.307 bn as of end February 2014, compared to USD17.105 bn as of end January 2014. This is the second month of increases after five consecutive months of decline and occurred despite lower tourism receipts during the second half of the month in light of terrorist attack in Taba. NIR rose by 1.2% m-o-m and by 28% y-o-y in February 2014. However, liquid NIRs (excluding gold reserves) increased modestly by only USD 20 mn to reach USD 14.54 bn, compared to USD 14.52 bn a month before. This confirms that the increase in NIRs during February was almost solely due to gold revaluation gains worth USD 182 mn associated with the recent hike in gold price in February (+6.3%) as shown in Fig 2.

Egypt gold prices

 Import coverage

Liquid NIRs levels and import coverage ratio (Liquid NIRs divided by the average value of monthly commodity imports) remained stable in February 2014 at USD 14.5 bn and 3.2 months, respectively. In other words, the current level of liquid NIRs can cover, on average, the value of commodity imports for 3.2 months.

One off flows absent in February

There were no exceptional one off inflows during February 2014, in contrast to January 2014 which witnessed the receipt of USD 2 bn from Saudi Arabia that supported CBE’s offering of USD 1.5 bn in an exceptional FX auction and the payment of debt obligations worth USD 700 mn to Paris Club countries. For more information on all exceptional one off flows compiled by Dcode EFC since May 2012, please check the infograph recently published by Dcode EFC at this link.

A hot summer visiting early

Power cuts have been common over the last month despite relatively good weather. As the summer approaches, the higher rate of electricity consumption will entail higher consumption that exceed domestic fuel levels. With domestic production rates being below normal, the government will be obliged to import higher quantities of fuel products to avoid severe and long power cuts that can lead to significant production disruptions as well as other social problems. This will add further pressure on the country’s NIRs over the coming months. We expect the government to solicit higher quantities of fuel supplies from Arab Gulf States which already pledged to support Egypt to overcome a looming fuel crisis during the summer. These supplies will be in the form of either grants (cash or in- kind) or imports at preferential terms. Consequently, we expect Egypt’s NIRs to stabilize around USD 17-18 bn over the short-term on the backdrop of continued Gulf inflows that counterbalance lower tourism receipts and higher fuel imports.