Egypt has lowered its target for foreign-currency reserves to $16 billion by the end of June, Planning Minister Ashraf El Araby told Al Arabiya.
The country’s foreign reserves have plunged by more than 60 percent since December 2010 to $13.5 billion at the end of February, according to Egypt’s Central Bank.
El Araby, speaking on the sidelines of the Arab Monetary Fund meeting in Dubai, said Egypt has a “goal of $16bn [in foreign reserves] by the end of June 2013.”
The claim suggests Egypt has lowered its targets for boosting its foreign-currency reserves. In an interview with Al Arabiya in January, El Araby said Egypt’s goal was to increase foreign reserves to $19 billion by the end of June – although he did acknowledge that the country may fall short of that target.
Egypt seeks to boost its reserves with help from international donors, and is currently in negotiations with the IMF over a $4.8 billion loan.
The country is also expecting $1 billion in financing from the World Bank, $500m from the African Development Bank, $900m from the European Union and $450m from the United States. El Araby confirmed that $190 million of the U.S. aid had already been deposited in the Central Bank’s coffers in recent days.
The interview with El Araby, conducted by Al Arabiya’s business presenter Nadine Hani, can be viewed in Arabic here.
The Egyptian government has been working on an economic reform program aimed at cutting its budget deficit, which has risen to 8.2 percent of GDP.
El Araby said spending on energy subsidies, estimated at 70 billion Egyptian pounds ($10.28 billion) in the current financial year, could no longer continue and that ‘rationing’ energy subsidies was a key component of the government’s economic plan.
“We have said very clearly that the status quo cannot continue because energy subsidies drain nearly a third of the total state budget,” El Araby said.
“What we spend on subsidizing energy exceeds the combined spending on education, health and scientific research,” he added.
El Araby said the government is planning on introducing a new fuel rationing system from July 1st, the start of Egypt’s fiscal year.
“We are starting to implement the distribution plan for energy products, be it cooking gas, gasoline… through coupons and smart cards,” El Araby said.
He explained that the price of some fuel would remain subsidized or part-subsidized for those in need. El Araby emphasized he was “talking specifically about energy subsidies”.
Some aspects of Egypt’s subsidy reform plan have already come into effect. On Monday, the price of cooking gas was raised by 60 percent for domestic use and 100 percent for use by businesses, according to the ministry of supply.
The Planning Minister’s comments came as the IMF is expected to visit Cairo for negotiations on a $4.8bn loan.
El Araby said repayments would be in instalments of between 20 and 25 percent of the total value of the loan, should the deal with the IMF go ahead.
Economists warned that stalled negotiations over the loan raises the possibility of a default on Egypt’s foreign debt.
Over the next 12 months, the Egyptian government has to repay approximately $70 billion in maturing debt, according to research consultancy Capital Economics.
While most of this amount is denominated in Egyptian pounds and held by local banks, the government must repay more than $6bn in maturing foreign currency debt due over the next year.
“The high cost of borrowing on the markets, coupled with the absence of an IMF deal, has raised the prospect that the government could, ultimately, default on its foreign-currency debt,” Capital Economics said in a note published Tuesday. “The markets are now pricing in a 40 percent probability of default over the next five years.”
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