Egypt’s foreign assets deficit widens by $3bn in June

Reuters/Mohamed Abd El Ghany

Egypt’s net foreign assets (NFAs) fell further into deficit in June, with the gap widening by EGP82.1 billion ($2.66 billion) from the previous month to negative EGP837.3 billion, according to central bank data.

Egypt’s finances have been squeezed by a persistent shortage of foreign currency accompanied by a sharp expansion in money supply over the last three years.

The drawdown on NFAs, which represent both central bank and commercial bank assets owed by non-residents minus their liabilities, has helped the central bank support Egypt’s currency over the past two years.

The central bank has fixed the pound’s official price at about 30.90 against the dollar since early March. One dollar was buying about EGP37.75 on the street as of Sunday.

NFAs are reduced by banks that increase their borrowing from abroad. Almost all of the June decline was caused by a decrease in NFAs with commercial banks.

The IMF said in December Egypt had been financing its current account deficit by drawing down NFAs.

Egypt’s official foreign reserves have been rising by small amounts since October 2022, and the figure for July is due to be published this week.

In September 2021, before the decline began, NFAs stood at a positive EGP248 billion.

Egypt’s M1 money supply, which includes currency in circulation and local currency demand deposits, rose by an annual 33.4 percent in the year to end-June, up from an annual 31.9 percent in May.

M2 money supply, which in addition to M1 includes local currency time and savings deposits and foreign currency deposits, rose by 24.7 percent in June.

Analysts say a rapid acceleration in money supply risks fuelling Egypt’s record inflation, which hit an all-time high of 35.7 percent in June, and putting further pressure on the currency, which has fallen by half against the dollar over the last 18 months.

Bankers and analysts say the money supply growth has been used to plug widening budget deficits.