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Increase in Egypt Central Bank Reserves Doubtful: Analysts

Thursday, 10 May 2012 | 4:45 AM ET

The Egyptian Central Bank surprised observers after reporting an increase in foreign currency reserves for the first time since December 2010 earlier this week.

AP

Several experts have now told CNBC that the increase of $90 million could have amounted to “propaganda” in an attempt to win the confidence of investors abroad.

Official data revealed that total reserves grew to $15.21 billion in April from $15.12 billion in March.

It sits in stark contrast to the original $36 billion before the uprising began in January of last year.

In recent months, numerous analysts have repeatedly argued that devaluation was inevitable and that current policies would lead to a currency crisis with far-reaching consequences.

Egypt's Central Bank is believed to have been throwing dollars from its vaults into the market in a bid to prevent a sharp depreciation of the local currency.

Central Bank Governor Farouk El-Okda, who rarely appears in the media, has been spearheading monetary policy since 2003.

The Egyptian pound hovered close to 6.04 against the U.S. dollar late Wednesday, marking a depreciation of 4.2 percent since January 2011.

A Central Bank official, who declined to be identified due to the sensitivity of the matter, explained that reserves had bounced back due to what he described as an “overall improvement in foreign currency inflows”, without elaborating.

Indeed, one critical source of foreign currency and an important driver of economic growth has been recovering, official data appears to show.

Minister of Tourism Mounir Fakhry Abdel-Nour told a press conference in late April that tourist arrivals rose 40 percent in the first four months compared to a year earlier.

But Ahmed Ghoneim, Professor of Economics at Cairo University, remained doubtful and warned the situation remained “critical”.

“The increase in foreign reserves is good news, but I don’t buy it. A hundred million is peanuts... it is political propaganda that can make some people happy,” he told CNBC.

As Egyptians prepare to cast their vote on May 23 and 24, negotiations with the International Monetary Fund(IMF) for a $3.2 billion loan have yet to be concluded.

An agreement is seen as fulfilling the dual purpose of helping finance the budget deficit, and serving as a vote of confidence for potential investors from abroad.

Parliament is expected to resume discussions on a new budget next week.

The economic headwinds have not slowed down all facets of activity.

Egypt's stock market is among the world’s top performers, while the Market Vectors Egypt ETFin the US has seen similar returns with 36.6 percent.

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Yousef Gamal El-Din is CNBC's Middle East Correspondent and contributes to the channel’s flagship shows, as well as analysis for CNBC.com.

Stay in touch with him on Twitter at http://www.twitter.com/youseftv @youseftv

Contact Europe: Economy

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