Shares of the embattled Market Vectors Egypt ETF (NYSE:
) are off 1.4 percent today on news the North African nation is
at risk of losing a $4.8 billion loan from the International
Monetary Fund due to civil strife there.
Already suffering from a weak currency
and plunging foreign currency reserves
, Egypt's foreign reserves situation is worse than previously
thought, imperiling the country's ability to secure the much
needed IMF aid.
Egypt's central bank has revealed that its foreign reserves
slid to $13.61 billion in January from just over $15 billion in
December. Egypt had $36 billion in foreign reserves when the Arab
Spring first touched off two years ago,
according to the Associated Press
Egypt's plummeting foreign reserves have chased Egyptians out
of their local currency, the pound, into U.S. dollars. That run
was so dramatic that the central bank had to ration dollars, but
there merely sent Egyptians scurrying for euros. While it may not
be accurate to yet say Egypt has experience an outright run on
its banks, the situation could be problematic for EGPT because
the ETF does allocate nearly 41 percent of its weight to
financial services stocks.
As part of the $4.8 billion loan deal, the IMF wants Egypt to
implement harsh Eurozone-esque austerity measures such as tax
hikes and subsidy reductions.
Due to civil unrest there, observers doubt President Mohammed
Morsi has the political capital to implement those measures. With
an unemployment rate of about 12 percent, which is double for the
nation's youth, the IMF loan is critical, but the IMF austerity
program would no doubt be viewed as harsh.
EGPT has previously shown some sensitivity to foreign aid
news. In September, the ETF surged on news
Egypt was close to getting the U.S. to forgive $1
billion in debt
Missing out on the IMF loan could have consequences for Egypt
and EGPT. Without that loan, Egypt may not be able to finalize
talks for a $900 million loan from the European Union, $500
million from the African Development Bank and $450 million from
the United States, according to the AP. Egypt is also in
discussions with Turkey for $1 billion in financing.
Including today's loss, EGPT is now off 4.4 percent
year-to-date compared to a three percent for the Vanguard FTSE
Emerging Markets ETF (NYSE:
For more on Egypt, click
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