Prospects for Egyptian monetary reserve dissipation under the current global conditions

The Egyptian cash reserve has reached 41 billion US dollars by the end of February 2022, which is the highest level that reserves have reached in 22 months.

Reserves are considered evidence of the recovery of the Egyptian economy’s activity after the outbreak of COVID-19 (Coronavirus) epidemic, especially in terms of improving Egyptian revenues of tourism and exports. These reserves support the Egyptian currency and Egypt’s financial position as well.

However, under the current world circumstances, it is expected that the Egyptian monetary reserve will begin to decline for many reasons, most notably:

1- Paying off Egypt’s debts: Egypt intends to pay off debts of up to $7 billion this year, as the total Egyptian debt is about 137 billion US dollars which must be paid in foreign currency. Furthermore, raising the interest rate by the global central banks in order to combat inflation will increase the cost of this debt; and consequently, raise up Egypt's future debt burden.

2- Covering the expenditures resulting from commodities' prices rise: Egypt imports large quantities of wheat, barley, corn, oils, and tobacco, in addition to a number of major crops necessary for daily life. The government had priced a ton of wheat in its budget at about $250; while its actual price is expected to reach $500 within days. The same can be said about other kinds of grains. This actually means that the government will pay at least two billion US dollars extra as a result of differences in grain prices, especially wheat.

3- Covering the energy bill: With the oil price reaching more than $125 a barrel, Egypt is expected to pay more money to cover the energy bill, which averages at about $7 billion annually. Therefore, Egypt is expected to pay at least extra $5 billion, if current conditions persist. Although the rise in the price of oil may stimulate the price of Egyptian gas, making it possible to make up for the loss, Egyptian gas sales are based on medium-term not easily breakable contracts. Unlike oil contracts, gas contracts cannot be amended so quickly.

In addition to these factors, it is expected that the Egyptian tourism sector and intra-trade relations with Russia will be highly affected. As Russia is one of Egypt's most prominent trade partners and investors in the energy sector. The repercussions of the crisis will be reflected on the monetary reserve in the short and medium ranges. Moreover, lessening such effects in the long term will depend on the Egypt’s government's flexibility and ability to take advantage of the present circumstances.