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Thursday, November 08, 2012

Egypt's black hole

David Goldman has an update about the Egyptian economy. Things are getting worse.
Last June, the government claimed to have 4.7 million tonnes of wheat, or six months’ supply. It appears that Egypt has been running on reserves and failing to replenish stockpiles, mainly because the country remains desperately short of foreign exchange. A chronic shortage of diesel fuel and electricity, as well as shortages of vaccines for children, has plagued the Egyptian economy for the past year. The butane cylinders with which most Egyptians cook are in short supply, and the black market price has risen to ten times the subsidized official price. Egypt is billions of dollars in arrears to suppliers of diesel, butane, foodstuffs and other essential imports.
The fuel shortage has worsened the food shortage, because farmers can’t obtain enough diesel to run irrigation pumps and agricultural equipment, al-Arabiya reported last October 8. The extent of the damage to this year’s harvest is hard to estimate but seems substantial, according to the newspaper.
The latest central bank data for foreign exchange reserves suggest that Egypt is running on fumes. The country’s trade deficit has risen to about $3 billion a month, and its foreign exchange earnings from tourism, the Suez canal and workers’ remittances amount to $1 to $1.5 billion a month, leaving a monthly hole of $1 to $1.5 billion. Cash reserves were at $7.7 billion in October, the central bank reported this week, essentially unchanged from $7.63 billion in September, after $1 billion in new loans from Qatar and Turkey, Reuters reported:
Egypt in October received $500 million from Qatar and another $500 million from Turkey, state-run al-Gomhuria newspaper said on Monday quoting an unnamed central bank official.
It was the second such payment from Qatar, which has promised to deposit a total $2 billion with Egypt’s central bank by the end of the year.
Egypt drew $600 million from reserves during the month to pay for petroleum imports and $100 million to repay foreign loans, the newspaper quoted the official as saying.
The $1 billion of loans in October evidently failed to cover Egypt’s import needs; although liquid reserves remained stable (at barely two months’ coverage of the trade deficit) the country continued to burn through stockpiles of wheat, and failed to import enough diesel and butane to run the economy. Turkey is running a current account deficit of between 8% and 10% of GDP and still owes money to the IMF, while Qatar’s total foreign exchange reserves of $20 billion are barely sufficient to fund Egypt for a year. Saudi Arabia refuses to lend money to the Muslim Brotherhood regime in Cairo because the Muslim Brotherhood wants to overthrow the Arab monarchies of the Sunni world. The Obama administration proposed $1 billion in emergency US aid (a lot less in terms of actual folding money) but it seems unlikely that the Republican-controlled House of Representatives will approve even this pittance.
And you wonder why the US State Department wants to ignore the Middle East and focus on Asia?

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