The Central Bank of Egypt (CBE) has revealed that the country’s net international reserves rose to $40.934bn in December 2021, an increase of $25m from November’s $40.909bn.
Egypt’s international reserves consist of foreign exchange (FX), gold, special drawing rights (SDRs), and net loans from the International Monetary Fund (IMF).
The value of FX reserves also increased to $34.056bn in December 2021, compared to the $34.035bn recorded in November.
Furthermore, the CBE said that the value of gold included in the reserves increased by about $6m in December 2021, reaching $4.228bn, up from $4.222bn in November 2021.
SDRs, however, decreased to $2.657bn, compared to November’s $2.659bn.
On the other hand, Egypt’s net international reserves increased by $872m in 2021, as opposed to 2020’s $40.062bn.
The purpose of FX reserves is to support the currency, help the state fulfil its financial liabilities, and ensure that basic commodities are imported for several months. The volume of reserves reflects a country’s strength or weakness.
The revenues of the Suez Canal, tourism, exportation, foreign investments, and remittances are the most important resources feeding the reserves in Egypt.
In a previous report by the IMF, the institution expected that Egypt’s net international reserves would recover thanks to the main sources of FX growing to record levels. It expected the net international reserves to record $44.1bn in 2021/22, $47.6bn in 2022/23, $51.8bn in 2023/24, and $55.1bn in 2024/25.
Several experts stressed that despite all the challenges facing the Egyptian economy during 2021, cash reserves remained within safe limits, and were even able to record a remarkable rise despite the pandemic and the emergence of the Delta variant in 2021.
They pointed out that the rise in the monetary reserves in 2021 despite all the challenges is a real achievement of the CBE’s management of the monetary policy, managing to keep the reserves at a level above $40bn while fulfilling all foreign obligations on time.
Furthermore, the reserves managed to reach unprecedented levels — the highest ever in the history of Egypt — reaching about $45.51bn in February 2020, which contributed to increasing the CBE’s ability to support the state in light of the COVID-19 crisis.
Deputy Governor of the CBE, Rami Aboul-Naga, said in a previous statement that the unprecedented levels the reserves reached before the crisis and the large-scale implementation of structural reforms made Egypt more prepared to face external shocks.
Mohamed Abdel-Aaal, a banking expert, explained that the high reserve of foreign currencies in the vaults of the CBE means that there is no shortage of FX liquidity and that all international obligations and dues are repaid on time.
He added that Egyptian banks meet all import credits for strategic commodities and that traditional foreign exchange sources are within their normal rates.
Abdel-Aal also expected that Egypt’s foreign exchange reserves would witness further improvement in the coming period, with no decreases.
He attributed his expectations to the fact that the net uses of Egypt’s FX reserves are carried out in a positive manner by the CBE, and that there are good flows from all sources of foreign exchange to Egypt, including remittances from Egyptians abroad, adding that Egypt’s tendency to issue bonds in international markets easily has made investors look favourably on the Egyptian economy.
Moreover, Abdel-Aaal highlighted the growth of foreign funding sources, such as the return of tourism and its prosperity, especially as Russian and German tourists return to Egypt.
He added that the growth of foreign investments in government debt instruments, ranging between $25bn and $30bn, has enhanced the balance of net foreign exchange reserves. Additionally, the remittances of Egyptians working abroad have increased, exceeding $30bn.
There has also been an increase in the exportation of some commodities and gas exports are estimated at about $3bn annually, as well as improvement in the Suez Canal’s revenues.
He stressed that the improvement in the assessment of Egypt’s credit rating enhances the confidence of the international community for direct or indirect investment in Egypt and contributes to an increase in net cash reserves.
He also pointed out that Egypt has net foreign cash reserves that cover approximately seven months of Egypt’s import needs from abroad, outperforming the global average of four months, adding that the main goal is not increasing the balance of net foreign exchange reserves, instead, it is maintaining the average number of months covered by net reserves.