Egypt's net international reserves plunged by another $2 billion in December, bringing the decline in reserves to 50 percent since the start of 2011, when a mass uprising that drove former President Hosni Mubarak from power battered the economy.
The most recent drop in reserves reflected an economic crisis in Egypt that has gained momentum with the nearly yearlong political turmoil building since Mubarak was pushed from power.
The bleeding of reserves threatened to seriously impair the country's credit-worthiness even further, as well as its ability to not only service it debt but meet the needs of a population clamoring for new opportunities in a country where over 40 percent live on or below a poverty-line of $2 per day.
Foreign reserves dropped to $18.1 billion in December, down roughly $2 billion from the previous month. The fall came even as officials tried to stem the slide over the past two months by raising policy rates and issuing dollar denominated debt.
Near daily protests, work stoppages and growing concerns about the pace of the country's post-Mubarak political transition and its overriding economic troubles have done little to either attract new foreign investors or convince ones already in the country to keep their money in place.
"We believe the continued significant shedding of the (reserves) in December 2011 is attributable to the widening of the trade deficit, the decline in tourism revenues, the exodus of the remaining foreign investors from the securities market and costlier debt repayments on the back of a depreciated currency," Cairo-based investment bank Beltone Financial said in a statement.
The country's military rulers and interim government have been trying to shore up the pound, and officials said they have refused requests to significantly devalue the currency. The moves have done little to allay concerns.
The three major credit ratings firms _ Standard & Poor's, Moody's Investors Service and Fitch Ratings _ have all downgraded Egypt's sovereign rating over the past few weeks, pushing it deeper into junk status, while the government's heavy-handed crackdown on protesters has sounded alarm bells internationally over its commitment to democratic reform.
The daily protests and occasional flare-ups of violence have also heavily affected tourism _ a traditional foreign currency mainstay for Egypt. In addition, investors have voiced concerns over the strong showing by the once-banned Muslim Brotherhood and the more hard-line Islamic Salafi parties, which have posted solid wins in the three-stage parliamentary elections. The last vote for the lower house ended this week.
The overriding concerns have hinged on the country's ability to deal with its spending and in the face of populist demands for higher salaries and increased outlays for social services and education. Officials recently approved a plan to collect on deferred taxes and have enacted subsidy cuts on energy for industries as a cost saving measure.
Underscoring the exodus of foreign capital and the broader concerns about the state of the economy, the Egyptian Exchange's benchmark stock index closed out the year down well over 45 percent from its levels at the start of 2011.
More broadly, analysts warn that with little new money coming in, the budget deficit is likely to be significantly deeper than the roughly 8.6 percent projected last year by the government. Beltone has estimated the deficit could widen to 11 percent of gross domestic product.
"In the absence of capital inflows to finance the current account deficit, the balance of payment must have posted a significant deficit in December that was compensated for by the NIR," said Beltone. "In addition, we believe some remaining foreign investors in the securities market have fled in December."
"In the absence of any positive triggers to the balance of payments in January and February, amid lack of external aid, and with an import cover of 3 months, the (central bank) will either raise interest rates drastically, or the government will impose import bans, issue more (U.S. dollar) debt, or the CBE will allow the EGP (Egyptian pound) to depreciate," the bank said.