Egypt's Economy Faces Thorny Path In The New Year

(MENAFN- Kuwait News Agency (KUNA)) News report by Mohammad Al-Mutairi
CAIRO, Jan 7 (KUNA) -- Egypt ushered the new year 2025 amid a package of economic and financial challenges namely high inflation and an unstable pound vis a vis the US dollar after edging above the 50 per dollar threshold in December.
The government had in the past overcome some of such challenges, most difficult of which was the influential exchange black market, held largely responsible for the pound weakness, and shortage in foreign laborers.
Shortage in the US banknotes' supplies is forecast this year, with the pound expected to exceed the 51 level vis a vis the dollar unless the Government rapidly succeeds in luring foreign investments through incentives and reasonable taxes.
Sherif Anara, in charge of financial operations at the National Bank of Kuwait in Egypt, said in an interview with KUNA that fall of the pound against the US dollar has caused jitters among the investors and consumers, raised imports' costs, trimmed foreign investments' inflow and burdened the limited income segment of the Egyptian people.
Anara has not ruled out more falls of the pound's value due to the greenback power and high demand in the local market namely from the private sector for funding enterprises.
However, Prime Minister Mustafa Madbouli affirmed in remarks in December that the pound fall was "normal" and linked to the rise of USD at the international level.
He had predicted that the pound would wobble within a five percent proportion in the near future due to the markets' status and statements about the US economy.
The Government, seeking to slash the deficit, imposed tight-belt measures in 2024 in response to demands by the International Monetary Fund to pave the way for granting Cairo a package of loans amounting to USD eight billion.
It cut subsidies for utilities, basic commodities and liberated the pound exchange rate. The measures targeted fuel, tickets of trains and metros and power, causing higher costs of other services and commodities namely transports and communications.
In a bid to control inflation after cutting the subsidies, the Central Bank of Egypt decided in late December to fix the interest rate for the sixth time in a row at 27.25 percent and 28.25 percent for the returns and lending rates.
However, the Government might eventually find itself compelled to lower the interest to 2-3 percent, following steps of the central banks in major economic powers after the emergence of encouraging data as to the fall of the inflation indices in November and December.
While the inflation posted slight fall in November reaching 25.6 percent compared to 26.5 percent the previous month, the continuation of the pound fluctuation and trimming the subsidies for the commodities and services might not stem the inflation, according to the former chairperson of the financial supervisory authority, Sherif Sami.
Sami told KUNA that delaying the decisions on lifting the subsidies along with continuing inflow of the hard currencies into the domestic market might prove helpful to stem the inflation.
The investment environment should be attractive for the foreign entrepreneurs and allow entry of the capitals to increase the foreign currencies reserves and employ them for expanding the economic activities in the key sectors, Sami said. (more)
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