Egypt's economy is set to slow down from 6.6% in 2022 to 4% in 2023, as import controls, inflation resulting from a weakening currency, and aggressive monetary tightening weigh on domestic demand and investment, according to GlobalData.
The Egyptian pound has seen three devaluations in 2022 and remains under pressure due to a shortage of US dollars. As of April 2023, it had depreciated by more than 65% on an annual basis. "With speculation of another devaluation growing, and inflation rate remaining above 30% in early 2023, the country had no choice but to float again and increase interest rates," the data and analytics company said in a new report.
Maheshwari Bandari, Economic Research Analyst at GlobalData, said: “Increase in interest rates has raised the burden of servicing government debt. Gulf allies now demand significant economic reforms as a condition for providing aid, a departure from their previous unconditional support. The government's privatization efforts to tackle the debt crisis have encountered obstacles, and the protracted crisis may have far-reaching economic and political implications, potentially exacerbating poverty levels.”
In December 2022, the IMF approved a $3 billion loan to support Egypt's struggling economy. However, the loan is conditional on Egypt implementing economic reforms and adopting a flexible exchange rate within the next four years.
Meanwhile, a Reuters poll on Wednesday said Egypt's urban consumer price inflation rate for May is likely to climb to 31.4% in May from 30.6% in April. The official rates are expected to be released later on Thursday.
(Writing by Brinda Darasha; editing by Seban Scaria)