2023-09-26 11:56:11
The Egyptian economy is affected by a number of simultaneous external and internal factors and challenges, which greatly enhance the inflationary pressures that the country faces.
The latest data on official inflation rates in the country, for the month of August, show a higher than expected increase, under pressure from the rise in prices of basic commodities, especially the food and beverage group, which rose by more than 70 percent.
While Egyptians are holding their breath waiting to reap the benefits of monetary policies used to curb inflation, there are many challenges awaiting the markets during the next stage, including the rise in oil prices and its impact on local prices.
Despite the high inflation rates, the Monetary Policy Committee of the Central Bank of Egypt decided last Thursday to stabilize interest rates.
The annual inflation rate in Egypt rose higher than expected last August, recording 37.4 percent, compared to 36.5 percent in July, according to data from the Central Agency for Public Mobilization and Statistics. Prices rose 1.6 percent in August on a monthly basis, down from 1.9 percent in July and 2.08 percent in June, according to official data. The aforementioned data indicate that the prices of food and beverages rose, on an annual basis, by 71.9 percent, with the prices of meat and poultry increasing by 97 percent, vegetables by 98.4 percent, and fish and seafood by 86 percent. Tobacco prices also increased by 57.6 percent. Data from the Central Bank of Egypt indicate that core inflation, which excludes goods with volatile prices such as food and fuel, fell slightly to 40.4 percent from 40.7 percent in July and 41 percent in June.
peak inflation
Director of the Vision Center for Economic Studies, economist Dr. Bilal Shuaib, said in exclusive statements to the “Eqtisad Sky News Arabia” website that inflation rates in Egypt have reached their peak in light of the fact that they are in the orbit of 40 percent, and there are fears of broader repercussions in the next stage, no. Especially with the onset of winter months away, and the potential increases in oil prices that accompany it, which recently exceeded $90 per barrel.
Estimates of the Central Bank of Egypt indicated that inflation rates in the country would reach their peak in the second half of this year, before gradually declining again towards the target rates, in accordance with the policies adopted by the Central Bank to curb inflation.
Shuaib adds: “Added to the concerns associated with the continued rise in oil prices are concerns related to the increase in the prices of strategic commodities, including wheat, both due to the effects of climate change and the shortage of grain supply in light of geopolitical developments related to the war in Ukraine, which means a possible rise in the prices of many strategic commodities.” the basic”.
He explains that these data prompted the Central Bank of Egypt, before the end of last week, to keep interest rates unchanged, hoping that there would be stability in the global situation, and that this year’s winter would not be extremely cold in Europe and would not put pressure on oil prices to increase demand.
Shuaib believes that “fixing interest rates is a positive step that may precede the step of reducing them later next year, especially since high interest rates have a significant impact on commercial activities, given that the beneficiary of the Central Bank’s initiatives and programs is the industrial sector, not the commercial sector, and thus commercial activities get a benefit.” High-interest financing, and thus the increase is passed on to consumers, which puts pressure on inflation rates.”
On Thursday, the Monetary Policy Committee at the Central Bank of Egypt fixed the overnight deposit and lending rates, and the central bank’s main operation rate, at 19.25 percent, 20.25 percent, and 19.75 percent, respectively. The credit and discount rates were also maintained at 19.75 percent. The Central Bank of Egypt explained in a statement that at the global level, expectations for global commodity prices, especially energy prices, continued to rise, compared to the expectations presented to the Monetary Policy Committee during its meeting in August 2023. Expectations for global inflation rates in the short term also rose to continue at levels exceeding Target rates, which poses a challenge to restoring global price stability, according to a statement by the Central Bank of Egypt.
Mid-crisis
The director of the Roya Center for Economic Studies continues: “The crisis takes – figuratively – the shape of an arc, and we are still in the middle of that arc… It is expected that there will be a breakthrough at the beginning of next year and gradual stability will occur at the world level, according to current indicators that indicate the inevitability of containing the war in Ukraine with… Global economies are being harmed by its wide consequences (..).”
Public finances in Egypt have been facing widespread pressure for years, in parallel with the foreign currency shortage crisis, and with the Egyptian pound losing about half its value against the dollar since March 2022.
While the Egyptian market is witnessing a wide gap in the exchange rates of the dollar between the official market and the parallel market, the latest estimates from “Fitch Solutions” indicate a possible devaluation of the Egyptian currency during the coming period (it said that it would be in the range of 19.9 percent, so that the dollar would record a level approximately equal to its current value in the market). The equivalent is between 38 and 40 pounds.
Structural imbalances
On the other hand, the World Bank’s advisor, professor of economics, Dr. Mahmoud Anbar, said in exclusive statements to the “Eqtisad Sky News Arabia” website that the amount of pressure that the Egyptian citizen is experiencing is perhaps higher than the official rates of inflation, which range between 38 and 40. percent in recent months.
He explains this by saying that there is a structural imbalance in internal markets, especially since “any person who is able to store a certain commodity can achieve unparalleled profits, while state intervention, whether through forced or strategic pricing, remains a theoretical matter that cannot be applied on the ground in reality.” This context.
He points out that the crisis of rising local prices can be dealt with through two main factors, and to curb the current inflation rates, as follows:
In the long term: working to increase productivity, through projects and strategies aimed at supporting and increasing production. In the short term: Taking measures to enhance local competition, by encouraging local units and small suppliers and producers, by easing restrictions on them, including licensing procedures, etc.
Anbar believes that if the current scene is not dealt with in the context of the measures required to support and increase local production with short- and long-term solutions, “inflation rates are likely to rise further.”
At the same time, the World Bank advisor points out the rise in oil prices in global markets (after crossing the $90 per barrel barrier and expectations of reaching the $100 threshold before the end of the year), stressing that this rise would lead to a broader inflationary wave, due to fuel’s close connection to various axes. And sectors of the production process, transportation, etc.
“It is expected that the growth rate of Egypt’s gross domestic product will slow during the fiscal year 2022/2023 compared to the previous fiscal year, in line with the developments of the initial indicators for the second quarter of 2023, and that it will gradually increase again after that in the medium term,” according to data from the Central Bank of Egypt. .
The pressures will not subside soon
In addition, the economic expert, Dr. Mustafa Badra, points out in exclusive statements to the “Eqtisad Sky News Arabia” website that inflation rates in Egypt have not yet reached their peak, explaining that “the inflation rates announced by both the Central Bank and the Public Mobilization and Statistics Agency reflect a past period.” “It witnessed relative stability or reasonable increases in prices from abroad, such as the prices of energy, agricultural crops, and grains.”
He added: “With the rise in oil prices, after decisions to reduce production, that rise would affect prices in general, and would be reflected in further rises internally, and thus the current rates of inflation could rise more than that,” explaining that they cannot recede. Inflationary pressures at the present time are limited to a number of paths, which are as follows:
A change in the course of interest rates in the world (in terms of starting to reverse the monetary tightening policy followed). Making positive progress in the course of the crisis in Ukraine (in terms of ending the war that is putting pressure on the world’s economies, especially the economies of emerging countries). Increasing trade exchange activity, which improves economic conditions.
Badra does not believe that the decisions to stabilize interest rates taken by major central banks, including the US Federal Reserve, in recent meetings are an indication of the end of the policies followed. Rather, they are a matter of relative calm and not decisions in a general direction, which is what the Fed expressed when it opened the door to more… Raise it in future meetings, affecting emerging countries affected by the impact of these policies.
In light of the accumulation of pressures, a previous report by the National Bank of Kuwait, last June, stated that Egyptian economic growth will slow down during the coming quarters, although it will remain somewhat high at a level ranging between 3 and 4 percent, and it will remain far from recession, and the economy is expected to recover. In the fiscal year 2024-2025, thanks to the improved competitiveness of the Egyptian pound, lower interest rates, and declining inflation.
Looking to the 2023-2024 fiscal year, the report expected growth to remain under pressure in light of the slowdown in reforms, and with the possibility that the authorities will continue to pressure imports and withdraw from reserves to defend the currency and buy time.
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