Egypt’s foreign reserves have just hit another record — more than $57 billion. But September added just $130 million, the fourth straight month of slowing gains. And the IMF programme ends in December. The question is how much of that cushion is really usable. Back with us is Shimaa Wagieh, Economics Expert, Professor and Banker at QNB. Welcome back to Fintech TV.
Thank you.
You wrote that a reserve’s real strength is its composition, not its size. By your own test — is today’s $57 billion stronger or weaker than the headline suggests?
We need to look not only at the size but at the components of the reserve — what is the source of the funds related to tourism, to the foreign exchange market, to service channels and foreign currency availability. We need to look at the factors that affect the reserve and the source of the increase, not only the size. We need to be clear about the components and the factors that affect the result.
Gold is now nearly a third of the total. Is the honest deployable number closer to $39 billion than $57 billion?
About all the gold — it is one of the most important factors in the reserve. But we need to make the difference between long-term investment and short-term investment in the reserve. Gold is related to assets without the ability to make liquid on the spot. Gold makes security, avoids financial risk around the world, and makes more trust and confidence for foreign investors to invest in Egypt. Most central banks around the world use gold as a basic asset of the reserve. But we need to merge between long-term assets used in reserve and short-term assets. The difference is related to liquidity and the ability to transfer payment on spot.
The monthly gain has shrunk four months in a row. Should investors read that as a build-up running out of steam?
A slowing increase in reserve does not mean we are breaking the strength point. It refers to changes which happened in prices of gold alongside the exchange rate. It may be related to changes in governance rules or monetary policy rules. It is not considered a bad effect.
Egypt was tested this year — $9 billion of foreign portfolio money left and the pound lost significant value before stabilising. Yet reserves kept rising. What actually absorbed that shock?
We cannot say reserves were the only factor. We need to also see other factors like exchange rate, foreign currency availability, and decision making by the government. We need to make the difference between hot money and the main factors. Hot money may leave — driven by global political issues and changes in investor confidence. But what we need to develop are the main structural factors in the economy. We need to attract more investors by increasing awareness about the real increase of reserve — where it came from and why the main reasons made the reserve increase in this period.
It has been a great pleasure having you with us on the show. Thank you for joining us.
Thank you.
