Egypt's central bank reversed in December its decision to restrict import payments to letters of credit (L/Cs) after it was strongly criticised by Egyptian businesses.

Although the import finance restrictions - imposed just weeks ago on 20 November - have been scrapped, trade financiers say they will continue to monitor developments in Egypt closely.

The pressures on foreign exchange reserves that have appeared since the 11 September terrorist attacks and prompted the proposed restrictions - lower tourism revenues, oil exports and Suez Canal receipts - still exist. And with the government seemingly reluctant to devalue the pound to ease the pressure, risk of exchange transfer delays and further attempts to impose import controls remains high.

L/Cs preferred

Commenting on the Egyptian U-turn, Australia's Export Finance and Insurance Corporation (EFIC) said that in its underwriting attitude L/Cs remain the preferred payment mechanism. It is however once again selectively considering open account transactions, subject to its usual underwriting criteria. It continues to assess individual buyers for their business track record, ability to withstand a depreciating currency and high interest rates. Buyers selling into export markets are preferred.

A Middle East specialist at one London bank said it will confirm L/Cs from the National Bank of Egypt and perhaps half a dozen other banks and that demand for commodity-based L/C deals has been quite strong.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.