The Egyptian economy is going through a great turbulence zone with a drastic depreciation of the value of the pound. The government is trying to turn the tide for better prospects. Egyptian government announces improved economic outlook.
The economic crisis and its effects on financial activity
The Egyptian economy is going through a great turbulence zone with a drastic depreciation of the value of the pound. The government is trying to turn the tide for better prospects.
With the beginning of the year 2023, Egypt, like other countries in the world, is facing many economic challenges after its emergence from the Covid-19 crisis, which intensified after the Russian invasion of Ukraine last February. That caused the subsequent shortage of supply of commodities, raw materials such as oil, gas and wheat, and the rise in prices on world markets.
Over the past year, Egyptians have been adversely affected by the floating of the pound, its depreciation against international currencies, the scarcity of the dollar in the Egyptian market, and the high bill for basic imports. All of these have had a negative impact on the purchasing power of Egyptians.
The Egyptian government was forced to negotiate again with the International Monetary Fund to obtain a new loan of $3 billion over the next four years. Indeed, such an agreement was reached and announced in late December.
Under the agreement, the Egyptian government has committed to a new float for the Egyptian pound at a time when the dollar shortage crisis in the market is intensifying. Expectations are that the new float under the current circumstances will lead to a further decline in the price of the pound against the U.S. dollar, as demand for U.S. currency by traders, savers, and the government increases to finance imports and protect savings from price fluctuations in the Egyptian currency.
The Egyptian government has been quick to reassure the public that the agreement aims to “achieve financial stability, advance the comprehensive economic reform process and stimulate sustainable growth. However, many analysts doubt that this goal can be achieved while the pound is unstable and the investment climate for private capital is weak.
An accumulation of crises that exploded in 2023
The causes of the Egyptian crisis are cumulative and intertwined, and vary between internal and external factors. The crisis in the country is due to many mistakes that Egyptian governments have made in recent years, according to Egyptian economist Abdel Khalek Farouk.
As for the structural reasons, Farouk confirmed to FLA that Egypt’s ability to produce its own food is decreasing year after year. After Egypt achieved self-sufficiency in most agricultural crops, it now imports, on average, between 65 and 70% of its food needs from abroad. This issue has greatly affected the need to obtain foreign currency for imports, which has become an element of pressure on the local currency.
As for the second element of the production structure, it is the erosion of industrial capacity year by year, due to the disinterest in industry, the inability of local Egyptian industries to compete with foreign industries, in addition to the large number of commercial agents and importers from abroad. This has affected the ability of the Egyptian currency to cope with this new situation, according to Farouk.
On the financial front, Farouk pointed out that Egyptian President Abdel Fattah El-Sisi has adopted a policy of dumping foreign debts, whether to cover the trade balance deficit, or to build projects that are not economically feasible, at least for the next 10. -15 years.
The depreciation of the pound: cause and consequence
However, the reasons for the depreciation of the pound are not limited to this, but also the movement of “hot money” that moves in the stock market to buy assets, shares and debt securities of the Egyptian government, then make a profit and quickly exit the Egyptian economy, according to Farouk.
The Egyptian government is facing increasing difficulties in controlling financial conditions, especially with the depreciation of the currency and the reluctance of long-term foreign investments to enter the Egyptian market. According to the Egyptian expert, 20 billion dollars have left Egypt in the last two years due to the “Corona” crisis, and many Arab and foreign investors have thus left the local market. This has had a very negative impact on the remaining foreign exchange reserves at the Central Bank.
This case, according to Farouk, forced Sissi to beg Saudi Arabia, the United Arab Emirates and Kuwait to deposit additional funds in foreign currency with the Central Bank of Egypt in exchange for a large interest, or to request an extension of the deadline for depositing these funds. This has resulted in the Egyptian economy becoming hostage to the Gulf countries, especially Saudi Arabia and the United Arab Emirates.
The reasons do not stop there, since he also pointed to the existence of a real trend in recent times to reconsider the evaluation of the exchange rate of the pound against the dollar, in order to attract Emirati and Saudi investments, explaining that this The issue, in fact, means devaluing Egyptian assets against the dollar, and thus buy the largest number of Egyptian assets at prices defying competition by Gulf investors.
The Egyptian economy has reached a positive growth rate in the first quarter of 2023/22 of 4.4%.
The Egyptian economy is going through a great turbulence zone with a drastic depreciation of the value of the pound. The government is trying to turn the tide for better prospects.
Egyptian government announces improved economic outlook
Hala Al-Saeed, Minister of Planning and Economic Development, participated in the session of the Egyptian Ministerial Economic Committee, as part of the activities of the Seventh Middle Est and North Africa Investors Conference, from January 30 to February 1, in the presence of several of the ministers.
Egyptian government announces improved economic outlook: During the session, Hala Al-Saeed referred to the multiple crises that the world is currently facing, starting with the pandemic of COVID-19, followed by high inflation and therefore interest rates, as well as geopolitical challenges represented , especially in the Russian-Ukrainian war, which led to deep and widespread shocks.
The range of food and energy systems and a rise in prices, and Al-Saeed continued that the strong nature of the counter-current requires policymakers to make a “trade-off” in policymaking, explaining that the treatment of a crisis essentially leads to the emergence of another crisis or exacerbation of an existing crisis, stressing the need to understand the multiple challenges and how they interact with each other to know how to deal with them.
On the performance of the Egyptian economy, Hala El-Said explained that a growth rate of 6.6% was achieved during the fiscal year 2021/2022 despite the challenges, so that this positive growth will continue in the first quarter of the fiscal year 2022/ 23, recording 4.4%, explaining that the government expects a growth rate between Between 4, 8 and 5% during the current fiscal year, following relatively high rates, driven by productive sectors such as tourism, communications and information technology, agriculture, logistics services and retail and Suez Canal activity.
Egyptian government announces improved economic outlook.
Tourism & foreign direct investment: key solutions of the govenment for improved economic outlook
El-Said said that the tourism sector is performing very well, pointing to the increase in the number of tourists by 55% in the first quarter of the current fiscal year compared to last year, stressing the government’s efforts to maximize the potential of the sector as a major engine of growth, adding that the revenues of the Suez Canal have increased by about 30%, indicating its strategic importance.
Al-Saeed stressed the importance of foreign direct investment as a top priority for the government, explaining its rise to more than 90% in the last fiscal year with expectations for 2023 and in the coming years; Egypt will be among the countries with the highest investment dynamics in the region.
Egyptian government announces improved economic outlook
Al-Saeed added that the government has followed a strategy of rationalizing capital and operating expenditures as part of a broader strategy to control the conditions of public finances and reduce the pressure on foreign exchange, after a period of political and economic turmoil, indicating that public investment acquired more than 70% of total investments.
Al-Said added that the state aims to double the role of the private sector in the economy to 65% over the next three years, while maintaining GDP growth and improving the competitiveness of the economy in the long term.
She explained that this is the main aspect of the structural reform program by targeting the real sector and developing the role of the private sector in the economy, ensuring that the program addresses the root causes of the imbalances in the real sector, creating decent job opportunities, diversifying and expanding production patterns, improving the business climate, localizing manufacturing, and improving the competitiveness of Egyptian exports, in addition to what the program includes in terms of strengthening technical education and vocational training to improve the labor market.