Reserve height alone is not enough

The official Egyptian Middle East News Agency quoted the Central Bank of Egypt as announcing a “rise” of reserves foreign exchange From 40.609 billion dollars in July to 40.672 billion dollars in August, indicating the continuation of its increases in recent months, after it fell to about 36 billion dollars due to the effects of the Corona virus pandemic. Indeed, foreign exchange reserves in Egypt rose, as reported by the news agency, and indeed continued to rise in recent months, but they have stabilized at $40 billion and fractions since December of last year until now, as all recent increases were slight, even eight months It did not succeed in moving the Egyptian reserve to the forty-one billion dollar mark.

But the fact is that the mere stability of cash reserves at this level is a good thing, but it will be necessary to bring up the rest of the details Egyptian economic scene Let’s know if the reserve number is really good, or if it hides many shortcomings. And the picture of the Egyptian economy, specifically with regard to the external side of it, of which the foreign exchange reserve is one of its most important elements, is not complete except by knowing the development accompanying the rise that occurred, in both the external debt, and also what foreigners possess of the Egyptian debt instruments in the local currency, whether in bonds or Treasury bills.
The data of the Central Bank of Egypt indicate that the external debt rose during the first quarter of this year by six billion dollars, to reach nearly 135 billion dollars, which means that the increase in the external debt in just three months represented nearly ten times the increase in reserves during nine Months. During the last eight years, the Egyptian external debt increased at rates ranging between 14% and 44%, reaching the equivalent of 35% of the Egyptian GDP, after it did not exceed 14% of it in 2013.
Although some argue that the debt is still within the safe limits, which we heard for the first time at a level of external debt that represents one third of the current level, the rise in the ratio of external debt to GDP, especially in light of the weak dollar component of the Egyptian GDP, raises a lot of concern, Not from the inability of the Egyptian government to pay its debts, but from the return that the Egyptian state bears in order to extend the term or renew the Gulf deposits deposited with the Central Bank of Egypt, or attempts to borrow more dollars from the international market in the form of foreign currency bonds or treasury bills.

The increase in the external debt coincided with the increase in foreign holdings of short-term treasury bills in the local currency, which is known as “hot money” in the “interest rate trade” operations in which investors obtain high interest rates for the Egyptian pound, with the Central Bank fixing the exchange rate of the dollar against the pound, or Strengthening the pound, allowing for an increase in the real return earned by foreigners on these investments.

And with the first sign of the high risk of these investments, these are the first to leave the market, causing great pressure on the foreign exchange reserves available to the country, as happened at the beginning of the spread of the Covid-19 epidemic during the first quarter of 2020.

The increase in the external debt coincided with the increase in foreign holdings of short-term treasury bills in the local currency, which is known as “hot money” in “interest rate trading” operations.

The statements of the Egyptian Minister of Finance, Mohamed Maait, indicate that foreign investments in Egyptian treasury bills and bonds have risen from about $60 million in mid-2016 to about $29 billion at the end of May of this year 2021, despite the exit of more than half of them during the epidemic crisis. middle of last year. The Egyptian government was only able to attract these sums by paying very high interest rates on its local currency, which were among the highest in the world. Last April, the US Bloomberg News Agency prepared a report in which it indicated that Egypt “continues” to pay the highest real interest rate in the world. This is the picture with regard to the external financial situation, for which the stability of the foreign exchange reserve represents a misleading front, and there is nothing in it that bodes well for an approaching improvement with the continued trade balance deficit and the current account deficit, widening year after year, first due to the expansion of projects that drain what is needed. Foreign currency is available to us, despite the absence of an urgent need for it, and secondly, due to the absence of policies that encourage local industrialization and import substitution, or the expansion of exports, to reduce the gap between what foreign currency enters the country and what comes out of it.

The negative effects of this picture will not be far, as the Egyptian citizen began to feel its direct repercussions on his standard of living and on the government services he receives, especially with the debt service item acquiring all the Egyptian government revenues, so that all that is spent after that is the wages of government employees and their spending. On everything related to education, health, sanitation and scientific research, including new loans in the budget each year.

More than twenty government companies are offered for sale, while continuing to reduce government subsidies for fuel, energy, water and food, and expanding the imposition of more fees, tariffs and fines

It will not be surprising after that, the emergence of ideas such as raising the price of a loaf of bread, and the issuance of a law allowing the dismissal of employees without a disciplinary method, allowing the termination of the service of thousands of them outside the legal administrative framework, and offering more than twenty government companies for sale, while continuing to reduce government subsidies for fuel, energy, water and food. And the expansion in imposing more fees, tariffs, and fines, and in return for reconciling violations, in a manner that impressed the officials of the International Monetary Fund, who were the first to call on the Egyptian government to work on reducing the budget deficit.

The Egyptian foreign debt is a big dilemma, and it is not a certificate of confidence in the Egyptian economy as some claim, and its cost will be borne by our children and grandchildren, unless we start the journey to pay it off as soon as possible, and this is of course if the current situation is not deliberate. Perhaps, later, it will be in detail.