Ahead of voting in the presidential elections in Egypt scheduled for December 10-12, Egyptians with limited means stand in queues in front of state-run cooperative societies to try to buy subsidized shares of sugar, which has become scarce.
This is the latest sign of economic pressures that have increased sharply since early last year and have put Egyptians in a difficult confrontation with rising prices and a foreign exchange crisis for which no solution has been found, while casting a shadow over pledges to proceed with postponed reforms.
Despite the economic problems, the way appears to be paved for President Abdel Fattah El-Sisi to win a third term, amid the marginalization or crushing of reliable opposition movements and the preoccupation of the most populous country in the Arab world with the war in Gaza.
But once the vote is over, analysts will closely monitor the austerity measures that they believe have been postponed due to the elections and could be the beginning of putting Egypt’s financial system in order, and that will be a major challenge, according to Reuters.
However, the head of the House of Representatives’ Plan and Budget Committee, Fakhri al-Feki, had denied last week the news circulating about the monetary authorities’ tendency in Egypt to float the pound after the presidential elections.
Al-Fiqi said in television statements on Monday: “As long as national security is affected, there is no float in any way.”
He added that the condition in which the exchange rate will be liberalized is that the inflation rate continues to decline, until it reaches the target of between five to nine percent, and the availability of sufficient foreign exchange earnings at the central bank, ranging from 5 to 10 billion dollars, to defend the value of the pound.
According to the latest data from the Central Bank of Egypt, “core inflation slowed to 38.1 percent in October from 39.7 percent in September,” and “it is still very high,” according to El-Feki’s description, who stressed that it will not decrease overnight, and that moving the exchange rate means “ Additional burdens on citizens, and people cannot bear it.”
Years of borrowing large amounts from abroad have led to the accumulation of heavy foreign debts on Egypt and the scarcity of foreign exchange needed to purchase basic goods.
The disbursement of tranches of the financial support package from the International Monetary Fund worth three billion dollars, for which the agreement was signed in December 2022, was halted after Egypt failed to fulfill its pledge to move to a flexible exchange rate and reduce the role of the state and the army in the economy.
In the past few months, the value of the already weak currency has fallen to about 50 pounds to the dollar on the black market compared to the official rate of 31 pounds to the dollar.
Central bank data says that debt installments due in 2024 are the highest level ever at at least $42.26 billion.
In the latest attempt to reduce prices, in October, the Council of Ministers announced an agreement with private sector producers and retailers to reduce the prices of basic foodstuffs, including sugar, by 15 to 25 percent after inflation rose to a record level.
But the efforts had little success. Within weeks, the retail price of sugar jumped to 55 Egyptian pounds ($1.78) from about 35 pounds in early October.
Tamer Ahmed, a 46-year-old street vegetable seller, said in front of a cooperative store where the government sells subsidized products: “The prices are very high for all people… for those who have it and those who do not have it (the rich and the poor). The crisis in sugar is for us. It is that we are waiting for the association to offer a kilo of sugar at 27 pounds. This is what we go to get two kilos of, three kilos of, but in the stores, fifty pounds are available and 55 pounds are available. Today (today) you do not say, “Bring me a kilo,” you say, “Bring me half a kilo of sugar. Bring me for five pounds.”
Growing debt bill
Unable to afford global debt markets, the government has been financing the growing deficit by expanding domestic borrowing amid rising interest rates domestically and abroad, which has led to larger deficits.
Outstanding treasury bills and bonds rose to 5.04 trillion pounds by the end of October 2023 from 4.35 trillion a year ago, as maturities shortened.
The average yield on one-year Treasury bills rose to 26.80 percent at the Nov. 30 auction from 18.65 percent a year ago.
Data from the Ministry of Finance showed that Egypt’s domestic and external debt due bill more than doubled in the quarter from July to September compared to the same period the previous year.
“Without IMF financing, ideally at a strengthened amount if not more pledges of related financing from the Gulf, an eventual debt crisis is inevitable,” said Patrick Curran of the Telimer Research Group. “Without a devaluation, there is no escape.” “I have a vision of how to get the program back on track.”
The three major credit rating agencies, Moody’s, Standard & Poor’s and Fitch, lowered the rating of Egyptian sovereign debt to undesirable levels.
When downgrading on October 20, Standard & Poor’s said it believed the elections, which had been brought forward, could provide a political opportunity for economic reforms including devaluing the currency to near the parallel market rate.
When downgrading the rating on November 3, Fitch said it expects privatization to accelerate, costly mega-infrastructure projects to slow, and currency adjustment to take place after the election, likely paving the way for a new and larger package from the International Monetary Fund.
But any devaluation could cause inflation to rise again.
Allen Sandeep of Al Naeem Financial Brokerage predicted, “We will remain between 34 and 35 percent until the end of the year, and with the beginning of the first quarter we will return to the 40 percent range due to the depreciation of the currency and its transient effects.”
The economic expert, Wael Al-Nahhas, in his interview with Al-Hurra website, considered that the officials’ talk about the failure of the pound to float after the presidential elections amounted to “playing with words.”
He explained: “Indeed, a new float will not happen, because the float is subject to supply and demand, and we already floated in November 2022, but what will happen is a movement in the price of the pound and the so-called exchange rate flexibility demanded by the International Monetary Fund, which we are currently communicating with in order to extend the payment deadline.” Debts”.
It is believed that the Central Bank of Egypt will move the exchange rate of the pound to between 38 and 40 pounds in the coming period, whether once or twice.
The war in Gaza brought statements of solidarity to Egypt from allies in the Gulf and the West, but it did not amount to promises of financial support similar to what they had provided in the past.
There are also new risks. Israel’s temporary suspension of natural gas exports for security reasons in October forced Egypt to expand power outages across the country to two hours per day compared to one hour previously.
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