Cairo, Egypt (CNN) – The European Bank for Reconstruction and Development has joined the list of major international institutions that have lowered expectations for the growth of the Egyptian economy during 2023. In its latest report, the bank expected a decline in the economic growth rate to 4.6%, compared to 5.6% in its previous report in last September.
Experts see the reasons for this reduction as a result of the continuing repercussions of the Russian-Ukrainian war and the global wave of inflation.
The International Monetary Fund had previously lowered its forecast for the growth of the Egyptian economy during the current fiscal year, which is due to end next June, 3 times in a row, from 5% to 4.4% and finally to 4% in its latest report. The World Bank also lowered its forecast for the growth of the Egyptian economy to 4.5% during the current fiscal year.
Dr. Fakhry El-Feki, Chairman of the Plan and Budget Committee in the Egyptian Parliament, said that the EBRD report is in line with the government’s expectations, which reduced the growth rate target during the current fiscal year 2022/2023 from 5.5% to 5% due to the repercussions of the Russian-Ukrainian war crisis. The growth target is still positive and equal to two and a half times the population growth.
The Egyptian economy grew by 4.4% during the first quarter of the 2022/2023 fiscal year, which began in July 2022, according to data from the Ministry of Planning.
Al-Feki indicated, in exclusive statements to CNN in Arabic, that the European Bank’s reduction of the growth expectations of the Egyptian economy was preceded by similar steps by international institutions, most notably the International Monetary Fund, which reduced the growth rate to 4%, while the World Bank was more optimistic and expected to achieve a growth rate of 4.6%. By a slightly higher rate of 0.1% than the expectations of the credit rating agency Fitch which amounted to 4.5%, which indicates the agreement of all international institutions on the continued impact of the repercussions of the Russian-Ukrainian war on the Egyptian economy, and their expectations for the growth of the economy at a rate ranging between 4-5%.
Fakhry Al-Fiqi explained the impact of the repercussions of the Russian-Ukrainian war on the Egyptian economy, as it caused a rise in the global inflation rate, which was reflected in Egypt’s import bill of basic commodities and production requirements, and thus this appeared in the rise in inflation locally to record levels, as it affected foreign exchange flows in Egypt. Egypt, which led to a drop in the exchange rate of the pound against the dollar from levels between 15-16 pounds to more than 30 pounds in less than a year, deepening inflation levels and bringing it to record levels.
The exchange rate of the pound fell against the dollar by about 100% in the period from March to this month, bringing the price of the dollar to 30.54 pounds for purchase, and 30.65 pounds for sale at the Central Bank of Egypt, on Tuesday.
He said that the Central Bank of Egypt worked to limit the rise in inflation by offering government banks high-yield savings certificates, and increasing the interest rate by 8% over the past year, to absorb liquidity from the markets and calm prices, but these decisions caused a slowdown in economic growth because they raised the cost of borrowing. , and affected companies’ plans to expand or operate factories at full production capacity.
In the last meeting of the Monetary Policy Committee of the Central Bank of Egypt, on the 2nd of this month, the interest rate was fixed on the rates of deposit and lending returns for one night, and the rate of the main currency of the Central Bank at the level of 16.25%, 17.25%, 16.75%, respectively, and it was maintained. On the credit and discount rate at the level of 16.75%.
The head of the Parliament’s Plan and Budget Committee believes that the Egyptian economy’s achievement of high growth rates requires a solution to the foreign exchange crisis, by attracting direct foreign investments to ensure the availability of sustainable dollar resources. However, this solution faces a challenge in the decline in foreign direct investment globally in emerging markets, which prompted The Egyptian government to accelerate the government offering program by selling shares of state-owned companies to Gulf sovereign funds.
Foreign direct investment flows into Egypt during the past fiscal year 2021/2022 achieved the highest growth rate in the last 10 years, at a rate of 71.4%, to reach $8.9 billion, according to an official statement from the Cabinet.
And he continued another matter to increase the growth rate, which is the calming pace of inflation globally to push the major central banks in the world to abandon the policy of monetary tightening, and began a journey different from the gradual decline in interest rates to create more job opportunities, control prices, and put public debt, whether domestic or external. at safe levels.
Fakhry Al-Feki pointed to the Egyptian government’s steps to stimulate foreign direct investment, by approving a state ownership policy document with the aim of increasing the participation of the private sector in the economy through exit and reducing its share in many productive activities, in addition to providing industrial lands at cost prices, and announcing an initiative to finance productive activities. At an interest rate of 11%, and preparing a new program to support exports to encourage companies to increase Egyptian exports, in addition to abandoning bureaucracy in issuing licenses and expanding the issuance of the golden license to investors.
The Egyptian government launched an initiative to provide 150 billion Egyptian pounds ($4.9 billion) in financing for the industrial and agricultural sectors, at a soft interest rate of 11% over 5 years, to encourage investors to produce and export.
In another matter, El-Feki said that the government seeks to promote investment opportunities in the Suez Canal economic zone to Japanese companies, whether by establishing an industrial zone such as the Chinese industrial zone or entering into partnerships with local companies to deepen local manufacturing in Egypt, referring to cooperation with Japan in He offered Samurai bonds in Japanese yen, at a value equivalent to 500 million dollars, during the past year, at an interest rate of less than 1%.
During the past few days, a delegation from the Suez Canal Economic Zone visited Japan and met with nearly 100 Japanese economic entities, including companies, banks, and institutions for financing and international cooperation, in order to introduce the investment opportunities available to the Japanese economy within the Suez Canal Economic Zone.
The economist, Medhat Nafie, attributed the reasons for the European Bank’s reduction of the Egyptian economy’s growth rate expectations this year to the continuing crisis of the availability of foreign exchange, which has its consequences on the availability of production inputs necessary for local manufacturing, and the accumulation of goods in ports over the past year, even after the breakthrough in the release of goods. There is a fear of the possibility of recurrence, which affected the continuation of the production process.
Nafie added, in exclusive statements to CNN in Arabic, another reason for the European Bank report, which is the record high inflation rate in Egypt, which leads to economic stagnation.
The inflation rate in Egyptian cities recorded a level of 25.8% during the month of January, which is the highest level it has recorded in more than 5 years, according to data from the Central Agency for Public Mobilization and Statistics.
