Egypt Clears Multibillion-Dollar Backlog as FX Crisis Fades

(Bloomberg) -- Egypt has cleared a multibillion-dollar backlog of foreign-currency requests from importers and foreign companies since floating the pound in November, a central bank official said, the latest sign that the economy is recovering from a paralyzing dollar shortage.

The banking system is also meeting new foreign-currency requests without delay, the official said on condition of anonymity. The bank shared previously unpublished data with Bloomberg, showing that $1.5 billion in pending requests from multinationals to transfer to mother companies or pay suppliers have been cleared. Some $552 million has been made available to foreign companies seeking to remit dividends. In total, $49 billion of trade-financing transactions were executed between the flotation of the pound and August, the official said.

The figures add to growing evidence that Egypt’s external finances have improved since it abandoned most currency controls in November as part of a sweeping economic program that helped clinch a $12 billion loan from the International Monetary Fund. Central bank reserves have almost doubled to $36 billion in July. International investors have poured billions into Egyptian local-currency debt.

Foreign companies and importers had struggled to obtain dollars since the 2011 uprising against President Hosni Mubarak, which drove away foreign investors and tourists.

The currency crunch became so acute that companies were finding it difficult secure letters of credit, leaving some $800 million of shipments stuck in the country’s ports. Those have now also been cleared. An outstanding $2.1 billion in requests made by importers and other businesses seeking to settle temporary overdrafts taken out before the flotation have also been cleared.

“The figures confirm the economy is recovering and is increasingly able to generate more of its FX needs,” said Reham ElDesoki, senior economist at regional investment bank Arqaam Capital. Increased transparency from the central bank, in line with its commitments to the IMF, was welcome and would help to reassure investors, she said.

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The central bank official said the increased availability of foreign currency in the banking system had boosted trading on the interbank system, which got off to a slow start due after the flotation due a severe lack of liquidity, as some banks were now selling their surplus dollars through it.

Central Bank Governor Tarek Amer told Bloomberg on Wednesday that the interbank system was “active and working well,” adding that about $9 billion had been traded since the currency was floated.

The pound has lost half its value since the float, and now trades at about 17.6 per dollar. The weaker currency, along with subsidy cuts, the introduction of value-added taxation and a sharp increase in import duties on hundreds of goods, have propelled inflation to more than 30 percent -- the highest level in more than a decade.

But the pound has stabilized and begun to slowly strengthen in recent months as dollar availability improves. “This comes at a time when the interbank market is reportedly seeing continued inflows, unlike earlier periods of Egyptian pound appreciation, an indication the market is comfortable about holding the Egyptian pound," said Mohamed Abu Basha, an economist at Egyptian investment bank EFG-Hermes.

--With assistance from Lin Noueihed

To contact the reporters on this story: Mirette Magdy in Cairo at mmagdy1@bloomberg.net, Abdel Latif Wahba in Cairo at alatifwahba@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Lin Noueihed at lnoueihed@bloomberg.net, Stuart Biggs, Mark Williams