The Egyptian Economy: Growth Slowdown and Currency Decline

Economy of Egypt – Cairo

A Reuters poll showed that the growth of the Egyptian economy will be at a slower pace than previously expected, while the pound will decline slightly more than previous expectations.

Egypt has long suffered from a foreign exchange shortage, record levels of inflation and an increasing debt burden, although the economy continues to grow steadily amid shocks from the COVID-19 pandemic and the Ukrainian war.

In December, the government agreed with the International Monetary Fund on a $3 billion loan program, amid pledges to adopt a flexible exchange rate regime, reduce the state’s role in the economy and boost the private sector.

However, the first review of the program has been postponed as the exchange rate has remained steady at around 30.85 pounds to the dollar since March.

The median forecast for growth in a July 10-18 poll of 13 economists, conducted by Reuters, was 4.2 percent in the fiscal year that began on July 1, down slightly from a previous forecast in April of 4.5 percent growth.

The poll also expected growth to improve in the fiscal year 2024-2025, to 4.8 percent.

The Egyptian government aims to grow the gross domestic product by 4.1 percent during the next fiscal year 2023-2024, according to a statement carried by the official page of the Council of Ministers last March.

Yesterday, Wednesday, the Egyptian Minister of Finance, Mohamed Maait, said that preliminary data showed real GDP growth of 4.2 percent during 2022-2023.

The median forecast in the survey indicated that the pound would decline to 34.8 against the dollar by the end of this year, slightly lower than a previous forecast of 34 pounds.

Economists expected the pound to drop to 36.95 against the dollar by the end of 2024 and to 38.90 the following year.

The currency has lost about 50 percent of its value against the dollar in a series of sharp devaluations since March 2022, and it is still facing pressures in the parallel market.

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Annual urban inflation rose to a record 35.7 percent in June, surpassing its highest level ever recorded in 2017, following a sharp currency devaluation under a previous International Monetary Fund programme.

The average forecast of 11 economists polled by Reuters indicates that inflation in Egyptian cities will decline to 22 percent by the end of the current fiscal year in June 2024, and then drop to 13 percent the following year.

In the previous survey in April, the average forecast of economists for inflation in Egyptian cities was 20.9 percent for the fiscal year 2023-2024, and 9.3 percent for the fiscal year 2024-2025.

Bankers and analysts say that an increase in the money supply was used to cover the growing budget deficit, which portends a further rise in inflation and puts more pressure on the pound.

2023-07-20 07:31:04
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