Economy of Egypt – Cairo
It seems that the Egyptian economy is on a date with billions this year, as there are about 56 billion dollars knocking on Cairo’s doors to enter the artery of the economy after successive crises that have exhausted it (starting from the Corona pandemic to the Ukrainian war and finally the war in Gaza).
These flows include:
- $35 billion from the Ras El Hekma project
- $9.2 billion in financing from the International Monetary Fund and the Environment Fund
- Financing of approximately $12 billion from the World Bank and the European Union.
For his part, he expected Institute of International FinanceThursday, to reach a total Foreign exchange reserves in Egypt To exceed $50 billion, or enough for eight months of imports, by the end of the current fiscal year, with support from the Ras Al-Hekma investment deal and the government’s conclusion of an expanded agreement with… International Monetary Fund.
The institute added in a recently issued report that Egypt’s conclusion of an agreement worth eight billion dollars with the IMF, instead of three billion dollars previously, and the strong devaluation of the pound’s exchange rate, which exceeded 50 pounds in commercial banks yesterday, Wednesday, exceeded expectations.
On Tuesday, the Central Bank of Egypt revealed a net increase Foreign exchange reserves To $35.31 billion by the end of February, from $35.25 billion by the end of January.
“The scope and speed of Egypt’s conclusion of the Ras al-Hekma investment deal with the UAE, which will generate immediate financing worth $35 billion, exceeded expectations and the market’s reaction to it was positive,” according to the Institute of International Finance.
Thanks to the deal, Egypt is also expected to receive $24 billion in direct liquidity, and $11 billion of UAE deposits will be written off. central bank As a result of converting it into the Egyptian pound and pumping it into projects to support development and economic development.
The report said that writing off UAE deposits would reduce the net foreign liabilities of the central bank by approximately three percent of gross domestic product, which would lead the central bank to record positive net foreign assets in the fiscal year 2023-2024.
The report added, “More importantly, writing off the UAE’s deposits will reduce the total external debt. In dollar terms, we expect the total external debt to decline from a peak of $165 billion in the fiscal year 2022-2023 to $157 billion in the fiscal year 2023-2024.”
The institute said that the IMF program will set a reform agenda that, along with foreign direct investment inflows from the Ras El Hekma project, could put Egypt on a sustainable path. He pointed out that liberalizing the pound’s exchange rate would represent an incentive for privatization and more foreign direct investments.
What is the government’s plan?
Under the most recent agreement with the International Monetary Fund, the authorities are committed to exchange rate flexibility as well as fiscal discipline in order to reduce inflation and the trade deficit.
The plan that led to the agreement also includes structural reforms to encourage private sector growth, with policies including canceling exemptions and privileges for state-owned companies, which have great influence.
The IMF said the agreement also provides “a new framework to slow infrastructure spending, including projects that have so far operated outside the scope of regular budget oversight.”
Currency value
International Finance also expects the value of the Egyptian currency to rise to about 42.5 pounds per dollar during the fiscal year 2024-2025, compared to the current price of approximately one pound per dollar.
The Institute of Finance also predicted that the average exchange rate of the Egyptian pound will reach about 33.5 against the dollar in the current fiscal year.
The fiscal year in Egypt begins from the beginning of July until the end of June of the following year.
Controlling external debt
The Institute of Finance confirmed that Egypt’s external debt, as a percentage of gross domestic product, will remain manageable at 45 percent in the fiscal year 2023-2024, up from 42 percent in 2022-2023.
He explained that the large sudden gains in foreign exchange that Egypt will obtain will contribute to alleviating the financing pressures facing the country.
The institute pointed out that it had expected Egypt’s total financing needs to reach about $15 billion, cumulatively, in the period from the fiscal year 2023-2024 to the fiscal year 2025-2026.
The institute said that the direct foreign exchange liquidity of $24 billion that the UAE will transfer to Egypt will contribute to covering any remaining financing needs in the foreseeable future, although part of that money will be used for other purposes, including clearing accumulated import orders in order to manage pressure in the parallel exchange market.
Warnings: Short-term solutions
But the institute described in its report that the large influx of foreign exchange into Egypt is a short-term treatment, indicating that Egypt needs to remain on the path of reform in order to achieve sustainability in the long term.
He added that previous mega projects, especially the New Administrative Capital, burdened Egypt with large external debts while negatively affecting the current account balance and the budget.
The report said, “In 2015, when the new administrative capital was announced, promises were also made of large foreign direct investments, but many of those promises were not fulfilled.”
He added, “We hope that Egypt has learned from past mistakes and is able to take full advantage of this opportunity as it continues IMF-backed structural reforms that focus on macroeconomic stability, restoring reserves, shifting toward a market-determined exchange rate, and enabling private sector-led growth.”
According to the institute’s data, Egypt’s economy is expected to grow by 2.6 percent in the current fiscal year, and then growth will recover to 4.5 percent in 2024-2025.
Elite Consulting: The fair price of the pound is about 42 pounds to the dollar
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