* IMF loan, reforms still vital for longer term
* But Saudi, Qatar have provided $9 billion in aid
* This is letting c.bank manage orderly depreciation
* T-bill yields have not shot up
* Further aid, other stratagems may support reserves
By Edmund Blair and Marwa Awad
CAIRO, Jan 23 Financial aid from the Gulf is
succeeding in buying Egypt's government time as it battles to
prevent a currency collapse, though Cairo may not be able to
afford much more delay in securing a loan from the International
An agreement with the IMF on the $4.8 billion facility was
expected to come last month, but talks were postponed because of
political instability in Egypt. The delay was a trigger for a
plunge in the Egyptian pound to record lows.
Officially traded between banks at 6.6350 to the U.S. dollar
on Tuesday, the pound has lost about 7 percent of its
value in under a month, and now stands 12 percent weaker than it
was before the early 2011 uprising against Hosni Mubarak.
But in some ways, the currency picture is positive -
surprisingly so to some investors who predicted an uncontrolled
slide of the exchange rate when it began its recent depreciation
at the end of December.
Downward pressure continues on the pound, which is widely
believed to be overvalued. But the central bank has so far been
able to manage the devaluation in an orderly way, with the
currency sliding in small daily increments that have been
Analysts say supplies of hard currency have not dried up in
the market, despite authorities' steps to limit the drop in
Egypt's foreign reserves, such as a ban on travellers carrying
over $10,000 of foreign currency into or out of the country.
While licensed exchange houses are quoting weaker rates for
the pound than banks do, the gap is moderate. A big, unlicensed
black market in dollars does not appear to have developed,
though one became a feature of business life during Egypt's last
economic crisis about a decade ago.
Meanwhile, Treasury bill yields have not soared, though they
could be expected to do so if banks foresaw financial disaster.
"One of the key things has been aid that Qatar is
providing," said William Jackson, emerging markets economist at
London's Capital Economics, referring to about $5 billion in aid
which Qatar has provided Egypt since Mubarak's departure. Saudi
Arabia has provided $4 billion more.
The money has prevented a steeper fall of the central bank's
foreign reserves, which at about $15.5 billion have more than
halved since the uprising and, by the central bank's own
admission, are at critically low levels.
Jackson said the foreign money, which has come in the form
of loans, deposits and grants, was a "double-edged sword"; it
bought time to manage the currency depreciation smoothly but
could hurt a future economic recovery if it tempted President
Mohamed Mursi's government to avoid cutting subsidies and making
other economic reforms needed to secure an IMF deal.
Echoing the views of other economists, he said the IMF loan
was important not just because it would replenish reserves but
because it would be seen by investors as a stamp of approval for
Egypt's economic policies.
For now, many investors seem willing to give Egypt the
benefit of the doubt. The average yield on 182 T-day bills
issued by the central bank on Tuesday was 13.725 percent, down
from 13.970 percent a week earlier and 14.104 percent two weeks
ago. Last August, it was well above 15.0 percent.
"There is no shortage of dollars," said one teller at a
foreign exchange house in central Cairo. He added that he was
offering the dollar for 7.0 Egyptian pounds - a rate about 5
percent weaker than the rates which the central bank was
permitting commercial banks to trade. He declined to be named
because he was not authorised to talk to media.
Some Egyptians are still converting their savings into
dollars because of fears of a currency collapse.
"I am buying dollars with my savings to be on the safe
side," 36-year-old Hassan Anis said while visiting one Cairo
exchange house, where the dollar was being offered at 6.95. "I
have come here because it is the best rate I could find."
But a senior commercial banker, who asked not to be named
because of the sensitivity of the issue, said there was no sign
of a major shortage of dollars in the market - though an order
for a large amount might not be filled immediately.
"It depends whether you want the money now or can wait till
tomorrow and how much you want. It seems to be patchy," he said.
"My sense is there is not a critical shortage and the difference
between official and black market rates is not massive."
In response to the decline in its reserves, the central bank
began at the end of last month to hold regular auctions of hard
currency, usually about $75 million each time, and set a cut-off
price for the pound. At each sale that price has steadily
weakened, and it was set at 6.6025 on Tuesday.
On the interbank market, the pound is allowed to trade 0.5
percent on either side of the average auction price. After each
auction so far, it has swiftly slipped to the weakest level.
How much further it falls may depend on how swiftly Egypt
returns to talks with the IMF. No date has yet been set. One
Cairo-based currency trader predicted an IMF deal would be in
place in March or April, and said this would help the pound
settle around 6.90 to 7.15.
In the meantime, further aid from Egypt's friends, and other
stratagems, may keep foreign exchange reserves at minimally
sufficient levels. Turkey transferred $500 million to Egypt
earlier this month, while the finance ministry may offer more
issues of dollar-denominated, one-year bills to sop up some of
the private sector's hard currency holdings.
Jackson said the pound was expected to fall to 7.50 in an
orderly manner, assuming an IMF deal was reached. He added:
"Even if a deal is ultimately agreed but it takes longer than
expected, then we may see more pressure."