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Net foreign liabilities in the banking system saw a 24% drop in February from the all-time high reached in January, in what can be considered the first official data to show the significant impact of Ras El Hekma agreement and what it brought along from de-dollarization and investor appetite for local debt on banks’ balance sheets.
By the numbers: By the end of February, net foreign liabilities in the country’s banking system stood at USD 21.9 bn from USD 29.0bn the previous month, marking the lowest figure recorded in 13 months according to Enterprise calculations based on Central Bank of Egypt data.
The main drivers: Foreign assets in commercial banks improved by USD 3.9 bn, while foreign liabilities in the central bank eased by USD 2.6 bn during February. Although the central bank doesn’t provide the reasons behind the change in balances, it is likely driven by the first tranche of USD 15 bn from the Ras El Hekma agreement that arrived in the nation’s coffers in late February and renewed appetite for Egyptian debt and equities following the agreement.
The caveat: The net foreign liabilities figure was denominated in EGP using a pre-float exchange rate of c. EGP 30.90 to the USD at the end of February. Liabilities are expected to widen again in the coming few months to reflect the 35% depreciation of the EGP over the past month as a result of the currency float on 6 March.
But it could just be a matter of time before we see a significant improvement: Egypt has a whole lot of funds coming in over the next few months. We’re getting the first USD 820 mn tranche of the IMF USD 8 bn package this week and another USD 820 mn in June and EUR 1 bn from the EU EUR 7.4 bn package before the summer. Egypt is also due to receive the second tranche of USD 20 bn from the Abu Dhabi wealth fund ADQ as part of the Ras El Hekma agreement in May.
What this means: These funds should be enough to outweigh the expected increase in net foreign liabilities due to the weakened EGP — a trend we saw before following the 2016 managed float.
