Egypt and Libya: capital takes flight

The Bank for International Settlements for the first time unveiled the extent of capital flight from Egypt and Libya in its latest quarterly report, noting that outflows from Egypt in the first three months of 2011 surged at their highest quarterly rate ever.

Internationally active banks reported that liabilities to residents of Egypt (in banking terms, a liability is deposit from a resident whereas an asset is a loan to a resident) rose by $6.4bn or 26 per cent, according to the BIS. Liabilities to residents of Libya rose by a more modest $2.2bn or a rise of 3.7 per cent.

“These developments most likely reflected domestic funds being moved out of the two countries as a result of the elevated levels of political and economic uncertainty,” the BIS said in its report.

The report went on to speculate that some of the increase in outflows from residents of Libya may have been restricted by the financial sanctions that many countries imposed that would have made it difficult for banks domiciled in those countries to accept deposits.

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The BIS report also noted that against the backdrop of rapidly rising oil prices in the first quarter, there was a surge in liabilities to residents of the United Arab Emirates equal to $17bn or 23 per cent. It was the single largest rise since the fourth quarter of 2007. Liabilities to residents of Saudi Arabia also rose, but by a much more modest amount, the BIS said.

The report also noted that the political unrest appeared to unsettle bank interest in lending to the Middle East and North Africa. Claims on (loans to) Egypt shrank by $3.2bn or 14 per cent in the first quarter, while those to Libya shrank by a more modest $0.7bn. However, that accounted for 37 per cent of all international claims.