Investors have pulled out hundreds of millions of dollars out of riot-torn Egypt since the uprising began last week, leading to fears that if the crisis continues, Egypt may not have enough in currency reserves to prevent a longer-term economic and financial crisis.
Banks remain closed across Egypt while its stock markets are still suspended.
According to a report in al-Jazeera, Egypt’s government had $36-billion in foreign reserves at the end of December 2010, which suggests there is not an immediate danger of a crisis in balance in payments.
However, if the hemorrhaging of currency continues unabated out of fear of Egypt’s future – and if depositors make a run on banks once they’re open – the outflow of money would damage the nation’s economy in the longer term.
Robin Amlot, managing editor of Banker Middle East, told al-Jazeera that people are beginning to run out of the basics, which will feed into inflation. The banks say they are very liquid at the moment, but it's a question of not just what happens in Egypt, but also elsewhere in the region.”
Almot added: All you have to do is look at the stock markets in the rest of the Middle East and in the Gulf, and see what an impact that the turmoil in Egypt has had. It is damaging business all around the region.
Meanwhile, in an effort to try to appease some of the anti-government demonstrators President Hosni Mubarak ordered his new prime minister Ahmed Shafiq to maintain subsidies, control inflation and provide more jobs.
“I require you to bring back confidence in our economy, Mubarak wrote in a letter to Shafiq, which was read on TV. I trust your ability to implement economic policies that accord the highest concern to people's suffering. I stress that subsidy provisions in their different forms must not be tampered with and that your government just challenge all forms of corruption.”
John Sfakianakis, chief economist at Banque Saudi Fransi, told al-Jazeera when markets begin to make bets against [the Egyptian pound currency], it will have a severe impact. The whole fiscal position of the Egyptian economy is going to be put to a very hard test if the violence, rioting continues for several weeks.”