Egypt Pound Weakens as Market Fears Qatar Deposit Repayment

Egypt's pound weakened against the dollar on the black market Sunday on concerns about the return of billions of dollars in deposits to Qatar later this month.

The pound exchanged at around 7.62 per dollar on the black market, according to one Cairo-based trader, down from 7.57 last week. The official rate was steady, at an average of LE7.165 per dollar.

"The payment due to Qatar by the end of this month is a factor," Mohamed Abu Basha, economist at Cairo-based investment house EFG-Hermes, said about the unofficial rate change.

Egypt is due to return before the end of November $2.5 billion in deposits made by the Gulf monarchy during ousted president Mohamed Morsi's year in office, according to Central Bank of Egypt (CBE) governor Hisham Ramez.

Following the ouster Morsi in July 2013, Saudi Arabia, the United Arab Emirates and Kuwait promised billions in cash and oil products in support of the new regime. So far, they have given $10.6 billion, mostly in the form of petroleum products, according to Minister of Finance Hany Kadry.

Last week, the Egyptian government said it received a $1 billion grant from Kuwait that "covers less than half the amount Egypt is returning to Qatar," according to Abu Basha.

The pound has lost some 23 percent of its value since a 2011 popular uprising ousted Hosni Mubarak, despite tight CBE control on the currency.

"We may see a weakening of the pound on the official market towards the end of the calendar year or the beginning of the next, as the economic recovery that is slowly gaining pace increases pressure on the local currency," says Abu Basha.

The government expects the economy, which grew only at 2.2 percent in the fiscal year ending June, to grow at a rate of 3.5 percent this year.

The tourism sector, a vital source of foreign currency and which contributes up to 11 percent of Egypt's gross national product, is on the rebound with officials reporting a 193 percent rise in the number of tourists in September compared to the same month in 2013.

"Although the tourism sector is recovering, it is coming from a very low base, after it was highly depressed this time last year, and is therefore still not sufficient to cover the shortfall in the foreign exchange market," said Abu Basha.

The slow recovery of tourism might not be sufficient to counter pressures on the local currency from obligations such as the backlog of payments due to foreign oil companies, Eman Negm, an economist at Prime Holding said.

Egypt owes $4.9 billion to foreign oil and gas companies operating in the country, a sum that the government has vowed to pay within the next six months.

Negm expects the pound to depreciate on the official market to around LE7.25 to the dollar in the course of the next year.

Last week, the CBE governor pledged to shut down Egypt's black market for currency within a year.

The CBE has been rationing foreign currency through foreign exchange auctions since December 2012.

The cut-off price for the dollar at the CBE's latest foreign currency auction on Thursday was LE7.14.