* Foreign investors' funds to be ring-fenced at central bank
* Scheme expanded to foreign purchases of government debt
* Local banks reaching limits of t-bill purchases
* Foreigners may remain cautious due to turmoil, no IMF deal
By Asma Alsharif
CAIRO, March 17 Egypt opened a scheme on Sunday
allowing foreign investors in its financial markets access to
dollars despite a hard currency shortage, a move which analysts
said aimed to attract external funding for the soaring state
The central bank said it was restarting a mechanism helping
foreign investors to repatriate their funds that was last used
in 2000-2003 - also a period of dollar shortages when the
Egyptian pound's value fell sharply.
Previously the scheme covered purchases on the stock market.
However, the central bank said in a statement that the "Foreign
Investors' Repatriation Mechanism" would now be expanded to
cover treasury bills and bonds.
"In addressing the central bank's responsibility for moving
the Egyptian economy securely through the exceptional
circumstances that the country is going through, it has decided
to reenact those mechanisms starting Sunday," the bank said.
The mechanism requires foreign currency inflows through
commercial banks be sold to the central bank and ring-fenced in
the Foreign Investment Fund. When investors sell their Egyptian
assets, they can then withdraw the sum in dollars from the Fund.
The statement did not make clear whether the scheme applies
only to new purchases of Egyptian assets or if it would also
cover existing investments. Central bank officials were not
available for comment.
Egypt has endured two years of political instability,
driving tourists and foreign investors away and draining its
foreign reserves. These fell to a critical level of $13.5
billion at the end of February from $36 billion just before the
uprising that ousted President Hosni Mubarak in 2011.
The Egyptian pound has lost more than 8 percent against the
dollar since the end of last year and central bank has rationed
dollars through auctions to commercial banks to slow the slide
in the pound and the reserves.
Hany Genena, head of research at Cairo-based Pharos
Investment Bank, said the scheme aimed to offer security at a
time of deteriorating state finances.
"It gives confidence to foreign investors that their funds
invested in Egypt will not be utilised to finance the balance of
payments," said Hany Genena, head of research at Pharos
Cairo-based Pharos Investment Bank.
A MAJOR HEADACHE
Egypt's current account deficit narrowed in July-December,
data showed on Thursday, but economists said it remained a major
headache that is adding to pressure on the government to do a
deal with the International Monetary Fund.
The government agreed with the IMF on a $4.8 billion loan
last November but requested a delay the following month due to
violent protests. Since then it has forecast its budget deficit
will soar to 12.3 percent of GDP in the year to June unless it
The IMF's Director for the Middle East and North Africa
Masood Ahmed met Prime Minister Hisham Kandil on Sunday but gave
few details beyond saying that very good progress had been made
and technical discussions would continue.
In the absence of an IMF deal, the central bank appeared to
hope foreigners would resume buying government debt which they
had largely dumped after the 2011 revolution.
Genena said hard-pressed local banks were reaching the
limits of how much in treasury bills they could buy. "This is to
attract foreign investors to come in. They added the T-bills to
this fund because many of the banks have reached the ceiling to
finance the government," Genena said.
"We ended up in a situation where we need foreign banks to
invest in the T-bills. Banks have no more capacity to finance
the government," he added.
However, foreigners may remain cautious while the IMF deal
and Egyptian politics are up in the air. Egypt and has rejected
the possibility of short-term IMF financing during its current
Parliamentary elections were supposed to start next month
but a court cancelled President Mohamed Mursi's decree calling
them. An appeal against the ruling was postponed on Sunday for a
Fitch agency cut Egypt's sovereign credit rating by one
notch to B in January, citing weakening public finances,
pressure on reserves and political upheaval. It assigns the
country a negative outlook, indicating the potential for further
downgrades in the next 12-18 months.