Egypt's central bank said on Thursday that a $2 billion loan from Qatar arrived in December, implying that the money had already been eaten up defending the currency before the foreign reserves crisis became public late last year.
News of the Qatari loan broke this week, and markets assumed that Egypt therefore had a cushion that would allow it to keep the pound's depreciation orderly, supporting Egyptian assets.
Political strife in late November and early December set off a rush to convert Egyptian pounds to dollars, sending the currency to record lows on concerns the government might devalue or bring in capital controls.
The central bank, which has spent more than $20 billion defending the pound in the two years since Egypt's popular uprising, said on Dec. 29 that its foreign reserves had reached a "minimum and critical limit".
It also announced a new currency regime as it struggled to stabilise the pound. But on Sunday the bank said foreign reserves had fallen in December by only $21 million, to $15.015 billion.
Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani announced on Tuesday that Qatar had lent the country $2 billion and given it an extra $500 million outright.
Asked by email on Thursday if the deposit arrived in January or December, Nidal Assar, the bank's sub-governor for investment and foreign relations, replied: "December".
Analysts said that the Qatari deposit's arrival in December indicated that switching out of pounds and into dollars had been much greater than thought over the last few weeks.
"That shows the scale of dollarization in December and explains the shift to auctions on the part of the central bank," said Said Hirsh, an economist with Maplecroft.
Turning to the IMF
Egypt has been negotiating a $4.8 billion loan from the International Monetary Fund (IMF) to deal with the crisis and expects an IMF team to visit Cairo in two to three weeks.
The loan agreement was approved in principle in November, but political turmoil in December forced the government to delay a series of austerity measures deemed necessary to win the IMF board's final approval.
"Without Qatari aid, Egypt was on course for a full-blown financial crisis and, perhaps, a forced deal with the IMF by February," Hirsh said.
Egypt's ambassador to Turkey said Ankara had transferred $500 million into Egyptian coffers on Thursday, the Egyptian state news agency reported.
The pound weakened by 0.46 percent on the interbank market after a central bank auction of dollars on Thursday, the eighth such sale since it introduced a new regime to reduce pressure on its currency.
The pound has lost 11 percent since the uprising that removed President Hosni Mubarak in early 2011, half of it during the last two weeks. The central bank limits falls in the currency on the interbank market about 0.5 percent per day.
The bank sold $49.1 million at its daily currency auction on Thursday, bringing the total amount it has sold since it introduced the auction system on Dec. 30 to almost $520 million.
Economists and bankers said this drain on reserves is unsustainable.
Raza Agha, an economist with VTB Capital, said that if the $15 billion reseves number for December included the support from Qatar it meant that the political turmoil had pushed the central bank to spend $2 billion to support the pound and capital flight.
"It also suggests that January data is likely to show a decline in headline reserves," he said.