(Bloomberg) -- Egypt's net international reserves dropped to $37.08 billion at the end of March from $40.99 billion the previous month, the central bank said Thursday, as the war in Ukraine pressures the North African nation's finances.
In a statement, Egypt's central bank said the conflict between Russia and Ukraine had led it to temporarily mobilize its “excess foreign currency reserves to calm the markets during periods of exceptional stress.” The bank cited its mandate to maintain price stability, and said the move was similar to actions taken during the pandemic.
The step was “aimed at covering substantial foreign investor outflows and partially covering local demand in order to ensure the availability of imported strategic goods and to repay external debt obligations in a timely manner,” it added.
A favorite destination among overseas portfolio investors in recent years, Egypt has seen some foreign outflows from its local debt market since Russia's invasion of its neighbor tempered global appetite for riskier assets. It's also facing a steeper bill for wheat imports that are the world's largest.
Egypt will see “reduced tourism inflows, higher food prices and greater financing challenges,” Fitch Ratings said last month. Russians and Ukrainians previously made up about a third of all tourism arrivals, while the war also “aggravates Egypt's vulnerability to outflows of non-resident investment from its local-currency bond market,” the company said.
The most populous Arab nation has requested discussions with the International Monetary Fund on new support that may include a loan. The central bank last month allowed the pound -- which had been stable against the dollar for about two years -- to weaken by more than 15%, and raised interest rates for the first time since 2017.
Oil-rich Gulf countries are looking to bolster Egypt's economy, cementing ties with the government of President Abdel-Fattah El-Sisi which date back to the 2013 ouster of an Islamist president by the army he led.
Saudi Arabia deposited $5 billion in Egypt's central bank and the kingdom's Public Investment Fund is exploring potential investments worth $10 billion. Qatar is putting up $5 billion for deals, while Abu Dhabi wealth fund ADQ made a roughly $2 billion deal to buy Egyptian state-owned stakes in publicly-listed companies.
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