CAIRO – Egypt's foreign currency reserves fell for the third consecutive month in September, according to central bank figures, putting pressure on authorities to devalue the currency, limit non-essential imports and take urgent steps to promote investment.
Reserves dropped 9.7% to $16.3 billion from the previous month, the lowest since March, after the central bank repaid $1.25 billion in loans that matured last month, the bank said Wednesday.
"They are getting closer and closer to the critical level," said Hany Farahat, a senior economist at CI Capital in Egypt. "If reserves go below $15 billion with the current state, the pound will come under severe devaluation pressure."
Egypt has been struggling to maintain its foreign reserves since the 2011 overthrow of longtime autocrat Hosni Mubarak. President Abdel-Fattah el-Sissi, a former general who led the army's overthrow of the Islamist Mohammed Morsi in 2013, has staked his legitimacy on stabilizing the country and reviving the economy.
Years of unrest have taken a heavy toll on Egypt's vital tourism sector and its investment climate. El-Sissi's government has launched a number of mega-projects to attract investment but they could take years to get off the ground. Meanwhile, analysts say concerns about a virtually inevitable devaluation are dampening interest.
"Everyone is expecting a devaluation, and since the expectation is there but it's not materializing, then investment will not come until after the devaluation takes place," said Amr Elalfy, global head of research at Mubasher Financial Services.
At the same time, the central bank has "social factors" to consider, he said. "Devaluing the pound will increase costs and will increase prices."
Import restrictions on consumer goods, "if the products are selected correctly without compromising local industrial and economic activity," could free up some foreign currency wasted on importing non-essentials, said Farahat.
El-Sissi hinted at such measures during a Cabinet meeting Saturday, saying the country imports "many unnecessary goods" that could be provided locally, according to a statement from the president's office.