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Egypt’s net foreign assets decline by $1.7 billion in January

Reuters/Amr Abdallah
The excess pound indicates a growing scarcity of foreign currency that is putting renewed pressure on Egypt to devalue its currency

Egypt’s net foreign assets (NFAs) declined by 160.2 billion Egyptian pounds in January, likely due to debts maturing and importers clearing backlogs from ports.

NFAs deteriorated to a negative 654.43 billion Egyptian pounds from a negative 494.3 billion at end-December, central bank data showed.

This works out to a decline of $1.70 billion using end-of-month central bank exchange rates, according to Reuters calculations. The central bank allowed the Egyptian pound to depreciate by nearly 24 percent in January.

“NFAs came under pressure possibly in part because of external debt maturities and with the import backlog being cleared from customs ahead of Ramadan,” said Allen Sandeep of Naeem Brokerage.

The falling NFAs reversed improvements made over the previous two months. In December, Egypt’s NFA deficit shrank by $2.06 billion following a 14.5 percent currency devaluation in late October, part of a financing programme agreed with the International Monetary Fund.

Before the October depreciation, the central bank had been relying on NFAs, which represent banking system assets owed by non-residents minus liabilities, to help support the currency. NFAs include foreign assets held by the central bank.

Russia’s invasion of Ukraine in February last year sparked a currency crisis that led Egypt to begin negotiating with the International Monetary Fund for a financial assistance package.

NFAs stood at a positive 248 billion pounds in September 2021, before the decline began.

Changes in the amount of NFAs represent net transactions of the banking system with the foreign sector, including those of the central bank, according to the bank.