Bloomberg News

Egypt Cuts Size of Dollar Auction After Getting Qatar Cash

January 09, 2013

Egypt sold $49.6 million in its latest foreign currency auction, reducing the amount made available to banks after it received $2.5 billion from Qatar to help shore up finances.

The central bank offered $50 million at the sale, down from $60 million yesterday and as much as $75 million in earlier sales. Banks could place bids for as much as $7 million each today, down from $9 million yesterday, according to a central bank announcement on Bloomberg.

The auctions were introduced Dec. 30 to halt the decline in Egypt’s foreign reserves which left authorities struggling to avert a run on the currency. The Egyptian pound has fallen 5 percent since then, reaching a record 6.5121 per dollar today. Central bank management had capped the currency’s losses during the revolt against Hosni Mubarak that began two years ago and the political turmoil that followed.

The government is seeking to restart talks with the International Monetary Fund on a $4.8 billion loan that it says will revive investment and encourage other donors. An IMF team will be back in the country in two or three weeks, President Mohamed Mursi’s spokesman said yesterday. Mursi delayed the accord last month when he suspended tax increases linked to an IMF-backed plan proposed by the government, which is preparing for parliamentary elections later in the year.

‘Societal Support’

During an IMF visit this month, Egyptian officials stressed to the fund the government’s “commitment to an economic and fiscal reform plan” and to an economic program that enjoys “societal support,” the prime minister’s office said in a statement today.

Qatar’s premier Sheikh Hamad bin Jassim al-Thani said yesterday that his nation had doubled its deposits in Egypt’s central bank to $4 billion and raised its grants to Egypt by another $500 million, bringing its total support for Mursi’s government to $5 billion.

With Gulf reserves of more than $1 trillion and Qatar’s interest in the success of Egypt’s Muslim Brotherhood administration, “it would be surprising to see Egypt run out of dollars,” Emad Mostaque, a strategist with Noah Capital Markets in the U.K., said in an e-mailed note. “Egypt can now comfortably make it through elections in a couple of months, after which the increasingly Islamist government will introduce economic reform through subsidy cuts and tax increases.”

Political Commitment

Mursi’s spokesman Yasser Ali said negotiations with the IMF would pick up from where they left off and that no change was expected in the government’s economic program, which had been presented to the IMF before. The organization has repeatedly said the program needs broad public support.

The IMF needs “the commitment of the political authorities that can actually endorse the program, own it and propose it to the population as theirs,” Managing Director Christine Lagarde said yesterday.

Mursi’s critics, including secularists and youth activist groups such as the April 6 movement, say the program offers little that is concrete. Some have vowed to stage a mass protest on Jan. 25, the second anniversary of the 2011 uprising, to seek the repeal of the constitution they say was forced through in a hastily organized referendum last month.

To contact the reporter on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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