CAIRO — Financial aid from the Gulf is succeeding in buying Egypt's government time as it battles to prevent a currency collapse, though Cairo may not be able to afford much more delay in securing a loan from the International Monetary Fund (IMF). An agreement with the IMF on the $4.8 billion facility was expected to come last month, but talks were postponed because of political instability in Egypt. The delay was a trigger for a plunge in the Egyptian pound to record lows. Officially traded between banks at 6.6350 to the US dollar on Tuesday, the pound has lost about 7 percent of its value in under a month, and now stands 12 percent weaker than it was before the early 2011 uprising against Hosni Mubarak. But in some ways, the currency picture is positive — surprisingly so to some investors who predicted an uncontrolled slide of the exchange rate when it began its recent depreciation at the end of December. Downward pressure continues on the pound, which is widely believed to be overvalued. But the central bank has so far been able to manage the devaluation in an orderly way, with the currency sliding in small daily increments that have been shrinking gradually. Analysts say supplies of hard currency have not dried up in the market, despite authorities' steps to limit the drop in Egypt's foreign reserves, such as a ban on travelers carrying over $10,000 of foreign currency into or out of the country. While licensed exchange houses are quoting weaker rates for the pound than banks do, the gap is moderate. A big, unlicensed black market in dollars does not appear to have developed, though one became a feature of business life during Egypt's last economic crisis. Meanwhile, Treasury bill yields have not soared, though they could be expected to do so if banks foresaw financial disaster. “One of the key things has been aid that Qatar is providing,” said William Jackson, emerging markets economist at London's Capital Economics, referring to about $5 billion in aid, which Qatar has provided Egypt since Mubarak's departure. Saudi Arabia has provided $4 billion more. The money has prevented a steeper fall of the central bank's foreign reserves, which at about $15.5 billion have more than halved since the uprising and, by the central bank's own admission, are at critically low levels. Jackson said the foreign money, which has come in the form of loans, deposits and grants, was a “double-edged sword”; it bought time to manage the currency depreciation smoothly but could hurt a future economic recovery if it tempted President Mohamed Morsi's government to avoid cutting subsidies and making other economic reforms needed to secure an IMF deal. Echoing the views of other economists, he said the IMF loan was important not just because it would replenish reserves but because it would be seen by investors as a stamp of approval for Egypt's economic policies. For now, many investors seem willing to give Egypt the benefit of the doubt. The average yield on 182 T-day bills issue “There is no shortage of dollars,” said one teller at a foreign exchange house in central Cairo. He added that he was offering the dollar for 7.0 Egyptian pounds — a rate about 5 percent weaker than the rates which the central bank was permitting commercial banks to trade. Some Egyptians are still converting their savings into dollars because of fears of a currency collapse. “I am buying dollars with my savings to be on the safe side,” 36-year-old Hassan Anis said while visiting one Cairo exchange house, where the dollar was being offered at 6.95. “I have come here because it is the best rate I could find.” But a senior commercial banker said there was no sign of a major shortage of dollars in the market — though an order for a large amount might not be filled immediately. — Reuters
