The Egyptian economic deterioration persists despite the international support

The Egyptian economy continues to perform poorly, as several economic indicators announced in recent days show that the financial situation is moving from bad to worse and that the crisis is not on its way to a solution, as President Sisi’s regime promises, which will have a substantial impact on the citizens.

The first of these indicators is the decline in foreign exchange reserves by about 1.6 billion dollars, recording 35.5 billion dollars at the end of last May, compared to 37.123 billion dollars in April. The Central Bank of Egypt justified this decline by paying two billion dollars of foreign debts due last May. But the Central Bank did not explain how this happened in light of the large dollar flows that entered Egypt in recent months, including a $5 billion deposit from Saudi Arabia and $2 billion in the sale of government stakes in major companies to the Abu Dhabi sovereign fund. The foreign exchange reserve has witnessed successive declines since March 2020, as it decreased from 45.5 billion dollars in February 2020 to 35.5 billion dollars at the end of last May, despite the increase in foreign debts by at least 31.5 billion dollars during that period, in addition to the dollar inflows resulting from selling government properties.

The second indicator is the continued rise in the annual inflation rate, which was recorded at 15.3% last May, compared to the same month the previous year, after 14.9% in April. This means the continuation of the inflation wave that Egypt has been witnessing for the past six months, during which inflation rose to its highest level since November 2018. Food prices, in particular, led to an increase in the annual inflation rate, as the change in the costs of the food and beverages group amounted to 27.9%. The rise in food and beverage prices significantly impacts the inflation rate due to the high relative weight of food and beverage prices in calculating the total inflation rate.

The third indicator is that the World Bank reduced its forecast for the growth of the Egyptian economy for the next year to 4.8%, at a rate of 0.7% decrease from its last estimate, despite announcing that its growth forecast for the current fiscal year had risen to 6.1%, an increase of 0.6% from its expectations last January. According to the Bank’s Global Economic Prospects report, “the decline in tourism as a result of the Ukraine war and the rise in food and energy prices are expected to weaken domestic demand and put pressure on the budget.” The bank’s expectations indicate that the economic growth rate in Egypt will “return to a rise in the fiscal year 2023-2024 to 5%,” referring to this expected rise to “discoveries in the gas sector,” which, according to its report, “benefit from higher prices and remittances from workers abroad, especially in Gulf countries.

On the other hand, the non-oil private sector is still suffering from deflation, as the Purchasing Managers’ Index, which measures the activity of the private sector, achieved only a very slight improvement last May, recording 47 points, compared to 46.9 points, last April. Despite this improvement, the results of the index still indicate the continued contraction of the non-oil private sector. The continuation of the contraction is due to the decline in demand, companies reducing their purchases of production inputs and reducing employment rates, and declining expectations about future activity. The PMI is based on the responses of purchasing managers in more than 400 non-oil sector companies to a questionnaire about the conditions of doing business, with any score above 50 being considered within the expansion zone and any score below this level within the contraction zone.

At the end of last May, Moody’s Agency for Credit Rating revised its future outlook on Egyptian sovereign debt from “stable” to “negative” and kept its current credit rating at its previous level, which is “B2”, and attributed this to several reasons, foremost of which are social and political risks. Moody’s said that “high social and political risks that contribute to raising the cost of government debt or eroding competitiveness would also exert negative pressure on the credit rating,” referring to the government’s likely need to meet these pressures with more social spending. Moody’s emphasized that social risks are high due to “low employment rates that restrict the absorption of youth and the expansion of the labour force, leading to high youth unemployment rates of more than 25% among that group, including graduates. Relatively high rates of poverty and gender inequality also contribute to social risks that have been exacerbated because of the significant costs of economic reform borne by consumers over the past few years.