Net foreign currency reserves increased slightly to US$16.48 billion at the end of January, according to the Central Bank of Egypt (CBE) website.
The figure was a slight hike from the US$16.45 billion the CBE held in reserves at the end of December. After a swift drop over the summer, foreign reserves have held steady since October, in large part due to loans from regional allies and international institutions.
The past five years have been difficult on the CBE as foreign investment and tourism dollars have evaporated. In 2011, Egypt’s foreign reserves sat at US$36 billion.
The news comes after a week of reports that major corporations, particularly in the auto industry, are facing difficulties accessing credit in dollars, making the import of key components difficult.
Last week, it was reported that General Motors would halt operations at its 6th of October City plant due to a lack of dollars available from Egyptian banks. On February 8, the company confirmed the shutdown: “The entire sector has a currency crisis. We can’t make a car without some of the parts. We stopped production temporarily as of yesterday until we can clear the imports held up in customs,” an anonymous company source told Reuters.
However, three days later the company announced the problem had been resolved and that operations would resume February 14.
The auto industry, which relies on imported parts for manufacturing, has clearly been frustrated by lack of credit and restrictive import procedures this month. On February 14, Hussein Mustafa, head of the Egyptian Auto Manufacturing Association, warned the foreign currency shortage risks the exit of foreign investment. Similarly, Adel Badeer of the Federation of Egyptian Industries stated that letters of credit for automotive manufacturers are currently taking two to three months to process, severely hindering industry production.
The result has been a slowdown in manufacturing and sales. Because of the manufacturing difficulties caused by a lack of credit, Egyptian distributors of Mercedes, Jeep, Volkswagen, Seat, Nissan, Honda, Toyota, Suzuki, Kia and Hyundai have frozen new orders on some models, the privately owned finance paper Al-Mal reports. The wait for many car models now approaches a year.
Access to credit has become a common problem for businesses in Egypt, and without adjustments these difficulties are expected to continue.
“The lack of foreign currency in the private sector in Egypt has begun to bite hard across a number of industries and is damaging the ability of some companies to produce goods easily, as seen in the General Motors case,” Angus Blair, COO of Pharos Holdings, told the London-based daily paper Financial Times. “It is likely that we shall hear of further similar cases before the government changes course.”
On February 11, the same day GM announced manufacturing would resume, the CBE issued a statement that it had injected US$14 billion into Egyptian banks over the previous three months to assist importers in obtaining credit in dollars, and to curb inflation.
“The Central Bank and Egyptian banks have embarked on an urgent plan to facilitate foreign trade in order to provide for production and for essential consumer goods for Egyptian citizens,” the CBE said. “To this end, the Central Bank has provided more than US$14 billion over three months, and this has had an immediate impact on foreign trade and industrial activity.”
Attempts to spur economic growth while maintaining currency reserves have been difficult, as demand for dollars has outstripped supply. In addition to injections of dollars into banks, the past few months have seen a number of measures to prevent foreign currency from leaving the country and to bolster the Egyptian pound. In December, the CBE announced new regulations requiring importers to provide 100 percent letters of credit, making credit more difficult to obtain for importers of certain “non-essential” goods.
In January, the government announced increased taxes on imported fruit, household items, clothing and other consumer goods, while also raising the cap on dollar deposits from US$50,000 to US$250,000.
So far this year, the measure the government has not been willing to take is devaluing the Egyptian pound. The pound, devalued three times in 2015, is currently pegged at LE7.73 to US$1. On the black market, a dollar currently fetches around LE8.75. While such a move might be painful, especially for a country facing inflation difficulties, many analysts see devaluation as among the most important next steps, as the move may help improve liquidity, attract investment and rally equity markets.