Ousting of the Muslim Brotherhood was financially beneficial for Egypt

Egypt continues to rely on the support from some key allies in order to maintain sufficient levels of foreign reserves. Here is the statement released by the Ministry of Finance for June, showing the decline in reserves due to the "absence" of incoming bailout funds at the time.

Egypt Ministry of Finance: - CBE [the central bank] net international reserves (NIR) fell by US$ 1.1 billion over the previous month to record US$ 14.9 billion at end of June 2013. The 7 percent decrease in NIR during the month of study was mainly due to the absence of external aid during the month of June and the increased weakening in the balance of payment fundamentals in anticipation of then-planned protests for June 30, 2013 and the expected decrease in other FX earners such as tourism and investment inflows. Moreover, the CBE’s revaluation of monetary gold holdings have been revalued downwards as gold prices fell from their June 2012 levels.

It is worth mentioning the Egypt’s NIR performance had been positive over the last couple of months, reaching US$ 16 billion at end of May 2013, as Egypt had been receiving external financing from Qatar and Libya and rationing heavily on its merchandise imports. Also, it is important to highlight that Egypt has converted Qatari funds of US$ 2.5 billion – received in December 2012 – into T-bonds of 18-month maturity, due in November 2014, with 4.25 percent annual interest, and further May’s Qatari funds worth US$ 3 billion, which will be converted into T-bonds of 3 years maturity with 3.5 percent interest rate.

Today however the central bank popped the following statement on its website in reference to the July numbers:

On a relative basis, that's a massive increase, putting the nation's reserves at the highest level since November 2011. Qatar or someone else has come to the rescue in support of the new government. It seems that ousting the Muslim Brotherhood from power has some real supporters abroad, which brings with it major financial benefits.

Egypt is going to need every cent of this aid. The nation's economy, which has been contracting, could take a while to stabilize given the recent turmoil.

HSBC: - The poor print underscores the enormous costs ongoing turmoil continues to impose on the Egyptian economy. Political order is a prerequisite for recovery, but even if that is achieved, it will prove very challenging to quickly reverse the losses of the past 10 months.

Source:  HSBC/Markit

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