Egypt’s economy
Egyptian urban inflation and core inflation are jumping to their highest levels ever
Cairo – Reuters
Posted on: July 14, 2023: 07:35 PM GST Last updated: July 14, 2023: 07:50 PM GST
Egypt risks exacerbating its record inflation and putting more pressure on the pound unless it slows the pace of an increase in the money supply that bankers and analysts say is being used to plug a widening budget deficit.
Central Bank figures show that the money supply (M1), which includes the local currency in circulation and demand deposits in the Egyptian pound, jumped 31.9% in the year to the end of May 2023, after it increased 23.1% in the fiscal year ending at the end of June 2022 and 15. 7% in the fiscal year 2020-2021.
Money supply growth accelerated sharply over a 3-year period during which the fundamental weaknesses of the Egyptian economy were exposed after it was hit by a series of shocks, including the COVID-19 pandemic and the war in Ukraine.
The state’s public finances are also under pressure due to a persistent deficit in foreign currency and mounting debts that need to be refinanced or repaid, $20 billion of which is within the next twelve months.
Meanwhile, spending has skyrocketed as the country pursues massive infrastructure projects, including new cities and a major expansion of the road network, while trying to continue providing some support in light of declining living standards.
The Ministry of Finance expects the budget deficit to reach 824.4 billion pounds ($26.7 billion) in the 2023-2024 fiscal year that began on July 1, up from an estimated deficit of 723 billion pounds in 2022-2023 and 486.5 billion in 2021-2022.
The ministry’s data also shows that it expects total spending to rise to 2.07 trillion pounds this year from 1.81 trillion pounds in 2022-2023.
Analysts say that printing more pounds at a rapid pace leads to an increase in inflation and a weakening of the currency.
“In light of the limited ability to obtain external financing and the banking sector’s high exposure to government debt, failure to curb the budget deficit may lead to further financing of the deficit by increasing the money supply and exacerbating inflation and foreign exchange problems in Egypt,” said Patrick Curran of Tellimer.
The central bank and the finance ministry did not respond to requests for comment.
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2023-07-14 15:35:00
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