Event

The Egyptian Central Bank has tightened import regulation as from January. Importers will have to provide 100% cash deposits on letters of credits, while 50% was required previously. Only medical and baby milk products are exempted from the new requirement. Moreover, for import transactions that require collection documents, local banks are required to obtain import documents no longer from clients as was the case before but directly from foreign banks. This rule seeks to stop any manipulation of receipts by importers but can delay payment.

Impact on country risk

The new import regulation seeks to promote local manufacturing and to narrow the current account deficit (estimated at -3.7% of GDP in 2015 and projected at -4.5% of GDP in 2016) as the new controls can limit import. Less import will also help maintain Egypt´s foreign currency reserves which stood at 2.7 months of import cover in August 2015. Egypt has been facing a decline in foreign currency receipts since the uprising against former president Hosni Mubarak in 2011 scared foreign investors and tourists. Egypt´s foreign reserves have also been affected by the overvalued Egyptian pound. The Central Bank is reluctant to devaluate the Egyptian Pound as Egypt mostly imports food and food price increases can lead to huge protests as seen during the Arab spring of 2011. Earlier in 2015, the Egyptian Central Bank already attempted to ration foreign exchange by restricting the amount of dollars that companies could deposit in banks. The new regulation follows the very same logic. Analyst: Jolyn Debuysscher, j.debuysscher@credendogroup.com