Egypt’s economy in dire straits as inflation soars

CAIRO: Egypt’s economy is reeling from an unprecedented inflation with consumers affected by steep price hikes of essential commodities and a sharp drop in traffic through the Suez Canal impacting one of the government’s main sources of foreign exchange.

Despite Egypt’s headline inflation dropping to 33.6 per cent in December, food prices remain stubbornly high in January.

To exacerbate the matter, billions of dollars of loan repayments are due throughout 2024 for the country.

Ordinary Egyptians, who have struggled with soaring inflation and austerity measures since the country’s economic troubles began in March 2022, feel the pinch of the economic hardship in the New Year, according to reports.

Despite Egypt’s headline inflation dropping to 33.6 per cent in December, down from 34.6 per cent the previous month, food prices remain stubbornly high in January. Some items, such as beans, doubled in price between December and January, while dairy products and cooking oil rose by about 30 per cent and 15 per cent.

On Jan 1, state-owned and private telecoms companies raised internet charges by more than 30 per cent. At the same time, steel companies raised prices by about 10 per cent, resulting in a similar rise in construction costs. The Egyptian Transport Ministry also raised metro prices by 20 per cent at the start of the month. The situation was only made worse by the black market exchange rate for the US dollar, which sank to a record low of 64 Egyptian pounds per greenback, more than double the official exchange rate of 31 pounds. Due to a shortage of US dollars in the country’s banks, importers, industrialists and manufacturers, all of whom rely on imported components, have to purchase any FX they might need to run their businesses through the black market.

Egyptians who can afford it have also been purchasing gold to preserve the value of their savings, which has driven up the price of bullion. The rising demand drove the price of one gram of 21-carat gold to about 3,800 Egyptian pounds ($123) on Thursday, compared to about 3,200 on Dec 1.

Egypt’s government has turned to the International Monetary Fund for loans to help it through the crisis, but this comes with strict conditions such as reducing public spending and a free float of the local currency. The fund says that floating the currency will ease fears about the stability of the Egyptian pound and encourage foreign direct investment. Apart from encouraging parallel markets, this has reduced direct remittances from Egyptians working abroad – an important source of foreign currency – by about 30 per cent in the first quarter of the current financial year which started in July. According to experts, 2024 would be tougher for Egypt than 2023 on account of the $32 billion that Egypt has to repay to various creditors over the year. — Agencies

Compounding the problem is the drop in dollar revenue from the Suez Canal because of attacks on shipping by Yemen’s Houthi rebels that have forced vessels to avoid the Red Sea. Revenue in the first week of January was down 41 per cent from a year ago, according to the waterway’s authority.