Egypt is rebuilding its foreign reserves with the help of loans and aid, easing a shortage of dollars and preparing the way for a loosening of its fixed exchange rate.
But economists and bankers say that unless it finds a sustainable inflow of dollars the import-dependent country could soon find itself back at square one.
Egypt has struggled to earn dollars since a 2011 revolt drove away tourists and foreign investors. Its efforts to defend the pound against growing downward pressure drained reserves from $36 billion before the uprising to $16.6 billion in August - enough for just over three months of imports.
Investors and economists have long urged the central bank to devalue the pound to a realistic market rate and ease the dollar shortage, which has badly hurt business activity. An overvalued currency is hurting exports and stoking up the black market.
Central Bank Governor Tarek Amer has said he would consider floating the pound once reserves exceed $25 billion.
That level could be attained by the end of the year if Egypt receives the first $2.5 billion instalment of an International Monetary Fund loan agreed in August, finalises its $3-5 billion eurobond issue and gets $5-6 billion in bilateral financing being negotiated with China and Gulf states.
Egypt has already received the first $1 billion tranche of a World Bank loan and expects a second $500 million tranche of an African Development Bank loan this year.
But bankers and analysts say debt obligations of $7-8 billion due this fiscal year and a backlog of unmet dollar requests estimated by bankers at $10-15 billion could quickly devour those new funds and expose the pound to renewed pressure.
To transition to a flexible exchange rate, they said, Egypt needs a sustainable inflow of dollars that has so far eluded it.
"This is the make or break for Egypt," said Hany Farahat, economist at Cairo-based CI Capital. "We need to have a cash flow cycle of foreign currency, not just temporary windfall gains from financial support."
Bankers point to the billions of dollars Egypt received from Gulf allies in 2013-14. The money was spent yet Egypt was still forced to seek IMF assistance as market imbalances grew.
The central bank, which has rationed dollars and prioritised essential food, medicine and raw materials, devalued the currency by 13 percent in March.
It said at the time it would pursue a more flexible exchange rate regime but held the pound steady anyway as the devaluation failed to restore confidence. The pound weakened to unprecedented levels on the black market in the ensuing months.
Egypt reached a preliminary agreement with the IMF last month for a three-year $12 billion loan programme based on reforms aimed at cutting the deficit and directing monetary policy away from managing the exchange rate towards inflation-targeting.
The deal, which awaits final IMF approval, raised expectations of a hefty devaluation followed by a return to the managed floating regime in place before the revolt that ended Hosni Mubarak's 30-year rule and ushered in a period of political and economic turbulence.
But Egypt's regular sources of dollars have yet to recover. Tourism receipts halved to $3.77 billion in 2015/16 from the previous fiscal year, hit by last year's attack on a Russian plane carrying holiday-makers from a Red Sea resort. Tourism receipts peaked before 2011 at $12.5 billion.
Foreign investors have not returned as the dollar shortage has forced the central bank to introduce capital controls, making it all-but-impossible to repatriate profits.
And though Egypt has embarked on a series of drastic trade measures, cutting the trade deficit by $7 billion this year, the country still suffers imbalances in dollar flows.
A flotation could lure back billions of dollars in remittances from expatriates who turned to the black market as the spread between the official exchange rate of 8.88 pounds to the dollar and the parallel rate widened to over 30 percent. But that cash is not enough to cover dollar demand.
"There is rising, pent-up demand that will eat up $10 billion," said Sarah Saada, economist at HC Securities.
"The central bank should move the exchange rate but floating, if there is not enough liquidity coming in, will bring the central bank back to square zero."
Bankers say the central bank will need a steep devaluation coupled with a series of aggressive interest rate increases to avoid dollarisation and lure back foreign investors.
The central bank's monetary policy committee will meet on September 22 to discuss interest rates. The bank has raised key policy rates by 250 basis points this year. Bankers say much more is needed.
Foreign investment in Egyptian treasuries amounted to about $10 billion before the revolt. It is now under $1 billion.
"The central bank cannot float the pound before devaluing and hiking interest rates first to avoid a run on the banks in the absence of inflow of dollars," one Cairo-based banker said.
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