Mish's Global Economic Trend Analysis

Egyptians Banks Open, Customers Line Up 100 Deep for Cash; Short-Term Interest Rates Expected to Hit 12.5%; Egypt About to Become Net Oil Importer

Posted: 06 Feb 2011 01:50 PM PST

The Egyptian stock markets will remain closed until February 8, but banks are now open and customers have queued up 100-deep to pull out cash. Withdrawals are limited to $10,000 a day and 50,000 Egyptian pounds (about $8,500 and falling fast).

Please consider Egyptians Line Up for Cash as Banks Open, Pound Falls

Hundreds of Egyptians queued outside banks to withdraw funds as lenders opened for the first time in more than a week amid protests demanding the ouster of President Hosni Mubarak. The pound dropped to the lowest level since 2005.

The pound weakened 1.3 percent to 5.9330 against the U.S. dollar, the lowest level since January 2005, at 5:07 p.m. in Cairo, from 5.857, according to data compiled by Bloomberg.

The central bank published on its website a list of more than 200 bank branches resuming operations today between 10:00 a.m. and 1:30 p.m. Customers are allowed to withdraw up to 50,000 Egyptian pounds and $10,000 a day.

Yields on Egypt's bills may surge about 30 percent, said Shahinaz Foda, the head of treasury at BNP Paribas Egypt. Credit Agricole CIB expects the pound to slump 20 percent in the "short term." The currency's three- month non-deliverable forwards rose to a record last week, suggesting the currency may fall more than 7 percent against the dollar.

Yields on three-month treasury bills should be "not less than" 12.5 percent in upcoming auctions, up from 9.5 percent last month, Cairo-based Foda said yesterday. The yield on the one-year bills may climb to 14 percent from 10.6 percent, she said.

John Sfakianakis, chief economist at Banque Saudi Fransi Credit Agricole Group, said in a note Feb. 3 "Over the short term we expect the Egyptian pound to fall by 20 percent, which would require the central bank to intervene on several occasions."

Egypt to Become Oil Importer

The Oil Drum had an interesting article last week about Egypt's energy and fiscal situation. Please consider What's Behind Egypt's Problems?

We have all been reading about Egypt in the newspapers, and wonder what is behind their problems. Let me offer a few insights.

At least part of Egypt's problem is the fact that in the past the government has threatened to reduce food subsidies. Now it is planning to hold food subsidies level and raise energy subsidies, but it is not clear that the dollar amount of subsidy will be enough. The government is taking steps to make food and energy affordable for most, but there is worry that the steps being taken will not be enough.

Egypt's Declining Financial Situation

There is a good reason why one might expect Egypt to shttp://beta.blogger.com/img/blank.giftart running into problems with energy and food subsidies. Its own financial situation is declining at the same time that the cost of food imports is soaring. If we look at a graph of Egyptian oil imports, exports, and consumption (using a graph from Energy Export Databrowser, which graphs BP Statistical Data), we find that Egypt's oil use has been rising rapidly, at the same time the amount extracted each year is declining.

Starting about 2010 or 2011, Egypt will change from an oil exporting nation to an oil importing nation, if there are imports available on the world market. The catch is that Egypt isn't the only one with declining oil production–world oil production has been approximately flat since 2005, and the countries that produce the oil are using more and more of it themselves. The result is that there is less oil available for export, even as countries like Egypt need more.

The oil that Egypt exports provides funds for the subsidies that it offers, so reduced exports mean less funds are available for subsidies.

...
Egypt is reported to be the world's largest importer of wheat. In 2010, the oil minister stated that Egypt imports 40% of its food, and 60% of its wheat. The problem this year is that world wheat production is down (at least in part due to weather problems in Russia) so world exports are down.

The Oil Drum article also addresses natural gas, energy subsidies, population growth, and other Egyptian budget pressures. It's an excellent article, well worth a closer look.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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