By Asma Alsharif / Reuters
Foreign investors' funds to be ring-fenced at central bank
* Scheme expanded to foreign purchases of government debt
* Local banks reaching limits of t-bill purchases
* Foreigners may remain cautious due to turmoil, no IMF deal
Egypt opened a scheme on Sunday allowing foreign investors in its financial markets access to dollars despite a hard currency shortage, a move which analysts said aimed to attract external funding for the soaring state budget deficit.
The central bank said it was restarting a mechanism helping foreign investors to repatriate their funds that was last used in 2000-2003 - also a period of dollar shortages when the Egyptian pound's value fell sharply.
Previously the scheme covered purchases on the stock market. However, the central bank said in a statement that the "Foreign Investors' Repatriation Mechanism" would now be expanded to cover treasury bills and bonds.
"In addressing the central bank's responsibility for moving the Egyptian economy securely through the exceptional circumstances that the country is going through, it has decided to reenact those mechanisms starting Sunday," the bank said.
The mechanism requires foreign currency inflows through commercial banks be sold to the central bank and ring-fenced in the Foreign Investment Fund. When investors sell their Egyptian assets, they can then withdraw the sum in dollars from the Fund.
The statement did not make clear whether the scheme applies only to new purchases of Egyptian assets or if it would also cover existing investments. Central bank officials were not available for comment.
Egypt has endured two years of political instability, driving tourists and foreign investors away and draining its foreign reserves. These fell to a critical level of $13.5 billion at the end of February from $36 billion just before the uprising that ousted President Hosni Mubarak in 2011.
The Egyptian pound has lost more than 8 percent against the dollar since the end of last year and central bank has rationed dollars through auctions to commercial banks to slow the slide in the pound and the reserves.
Hany Genena, head of research at Cairo-based Pharos Investment Bank, said the scheme aimed to offer security at a time of deteriorating state finances.
"It gives confidence to foreign investors that their funds invested in Egypt will not be utilised tofinance the balance of payments," said Hany Genena, head of research at Pharos Cairo-based Pharos Investment Bank.