Egypt finances in doldrums despite foreign aid

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Egypt is facing difficulties in importing fuel as foreign banks and traders are refusing credit and charging high premiums due to concerns over its financial and political stability, trading and banking sources said.

Cairo requested IMF up to $4.8 billion on Wednesday. Many analysts believe without such ad-hoc interventions, Egypt could quickly end up like debt-stricken Greece, dependent on a narrow pool of traders charging richly for supplies.

Egypt’s finances are already under pressure from high fuel subsidies. The new Islamist President Mohamed Mursi’s administration is finding it difficult to afford them but dare not cut in the precarious first months of his tenure.

Since the election of Mursi in June this year following the overthrow of Hosni Mubarak in 2011, the number of suppliers has shrunk as oil traders are struggling to secure letters of credit from banks.

“As soon as they changed the president, banks raised the costs of letters of credit involving EGPC,” one trader involved in supplying Egypt said, referring to Egyptian General Petroleum Corporation.

A spokesman for Egypt’s oil ministry declined to comment and asked for queries to be directed to EGPC. No one at EGPC was available for official comment on Wednesday and Thursday.

In the strongest evidence to date of rising fuel import difficulties, traders said Egypt had to cancel a tender to buy crude earlier this month after receiving no bids, and also had to scrap parts of a gasoline import tender because the prices on offer were too high.

“The costs that banks apply to any transaction involving EGPC are now double that of a normal transaction,” another trader said. Some tenders have been relaunched with new terms.

An official at EGPC, who declined to be named because he is not allowed to speak to the press, confirmed that some tenders had been delayed for a few days but declined to discuss reasons and details.

Egypt has already been struggling to maintain its massive oil subsidies since the revolution last year, as oil prices soared. The subsidies ballooned by 40 percent to almost $16 billion for the year ended June 30, about a fifth of its entire budget.

Egypt’s economy grew 2% in the 2011/12 financial year, down from 5% or more in previous years, as the revolution frightened away tourists and foreign investors and sparked a wave of strikes.

Cutting fuel subsidies would be a hard policy to swallow for Egyptians expecting a higher quality of life since the end of the authoritarian Mubarak’s 30-year reign.

While the banks are still financing Egypt, rules are becoming more stringent.

Though EGPC still gets letters of credit from banks, the trader needs to have access to confirmation lines with a first class European bank.

“These are very limited now unless you are taking the Egyptian risk on your own shoulders,” one trader said.

“The complication comes from some offshore banks when they open letters of credit and they reduce the credit period from the usual seven days to three days, and in some cases against cash,” said a source from a Cairo-based global bank.

Traders noted that recent influxes of cash into Egypt have eased some worries.

Saudi-based Islamic Development Bank (IDB) provided $1 billion to finance energy and food imports in July, while Qatar lent $2 billion last week.

The latest version of the revived crude tender offers a letter of credit, but only from Egypt’s national bank, which are not acceptable to most traders.

The rest will have to decide whether to take the risk.

“People are just going ahead on gut feeling,” one of the traders said.

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