Egypt foreign reserves see first gain since 2010

CAIRO Sun May 6, 2012 12:50pm EDT

CAIRO (Reuters) - Egypt's foreign reserves held steady last month for the first time since an uprising unseated the country's president, indicating a partial recovery in tourism and a slowdown in capital outflows after more than a year of economic turmoil.

The central bank has spent heavily to support Egypt's currency through an economic crisis sparked by Hosni Mubarak's overthrow in February 2011, which prompted foreign investors to scurry for the exit and hammered tourism.

Foreign reserves, which had fallen in each consecutive month from $36 billion before the uprising began, edged up to $15.21 billion at the end of April from $15.12 billion at the end of March, central bank data showed on Sunday.

Some economists are expecting a sharp drop in the pound as reserves appear close to danger level and long-awaited help from foreign donors including the International Monetary Fund (IMF) has been repeatedly delayed.

Few are willing to rule out a devaluation for now and foreign participation in Egypt's stock market remains small, but a partial recovery in tourism and a tendency for Egyptians to keep bank deposits in local currency are positive signs.

The reason for the slight gain in foreign reserves was not immediately clear because of a lack of monthly economic data.

One analyst said it appeared that volatile fuel import costs due to supply problems may have subsided and tourism picked up during Spring holidays in Europe and Gulf states, while investors who wanted to exit Egypt had mostly done so.

Capital outflows in the near future were limited, including a payment to the Paris Club of creditor governments.

"There are almost no capital outflows left ... other than a Paris Club installment and a Eurobond settlement, both in July," said the analyst at a bank in Cairo, who asked not to be named.

"We are less worried about the decline in reserves than the markets seem to be," another bank, Renaissance Capital, said in a research note last week. "We still see a lower probability of devaluation or depreciation in the short term."

It said it still expected Egypt to seal a long-delayed $3.2 billion loan from the IMF and reserves could also be helped by incoming foreign investment such as France Telecom's FTE.PA planned purchase of Mobinil (EMOB.CA) shares.

Saudi Arabia's ambassador was returned to Cairo on Sunday after a rare diplomatic row between the allies, caused by the arrest of an Egyptian lawyer in the kingdom. The ambassador confirmed the oil-rich Gulf state would this month provide financial assistance to Egypt that it has been promising for a year.

Egypt's economic challenges remain daunting.

Street clashes in Cairo have overshadowed the build-up to a presidential election that would be the climax in a transition from military to civilian rule.

The army-backed interim government is at loggerheads with an Islamist-dominated parliament, making it hard to formulate coherent policies to tackle Egypt's economic woes.

And whoever comes to power in July after the election will face little alternative to hugely unpopular taxes and cuts in government spending to reduce budget and balance of payments deficits inflated by a year of political and economic turmoil.

(Reporting by Tom Pfeiffer; Editing by Anthony Barker)

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