The Central Bank of Egypt (CBE) reported on Monday that Egypt’s net foreign reserves reached $40.672 billion at the end of August, up from $40.609 billion in July.
Since June 2020, foreign reserves have increased after having fallen to less than $36.5 billion from more than $55.5 billion because of the COVID-19 pandemic.
Egyptian foreign reserves consist of the U.S. dollar, euro, Australian dollar, Japanese yen, and Chinese yuan.
The provision of foreign exchange, including gold and various international currencies, is dedicated to pay for imports, repay foreign debts, and cope with any economic crises in exceptional circumstances.
On Sunday, Standard & Poor’s warned that Egypt must find a way to reduce its debt payments if it is to withstand a possible increase in global interest rates.
Egyptian bonds and treasury bills are among the preferred instruments for international investors looking for yield since its nominal interest rates and inflation differ from those of more than 50 nations analyzed by Bloomberg.
Foreign banknote holdings stand at more than $28 billion, which presents a significant barrier as tourism tries to fully recover from the Corona virus pandemic.
But Standard & Poor’s Associate Director Zahabia Gupta explained that the highest real interest rates in the world also come at a high cost, and leave Egypt vulnerable to large outflows if interest rates rise in developed nations – especially if the US Federal Reserve gradually reduces quantitative easing policies faster than expected.
Egyptian interest to revenue ratio and interest payments as a percentage of GDP rank among the highest among all rated sovereigns, notes Gupta.
To reduce Egypt’s interest rate, she said thatIt is imperative that investors have confidence in Egypt’s economic model so that they reduce the risk premium they ask for when buying Egyptian government debt.
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