Egypt Dims Lights To Boost Foreign Reserves
An economic crisis sparked by the war in Ukraine is casting darkness on Egypt’s streets as the government dims the lights to free up energy for exports and boost hard-currency reserves.
Russia’s invasion of Ukraine had a direct impact on Egypt, the world’s largest importer of wheat and dependent on the former Soviet Union for more than 80 percent of its food.
Egypt, which sought a loan from the International Monetary Fund in the wake of the war, is sending more gas abroad to boost its foreign exchange reserves – a move that has been criticized.
While the government announced power rationing this month, signs of waste have drawn contempt.
A Cairo resident in his 30s, who did not want to be named, said dissatisfiedly: “I see street lights still working during the day… and we are suffering from high electricity bills.”
The country’s vital tourism industry has also been hit by the conflict in Ukraine, reducing the flow of holidaymakers to a country still reeling from the 2011 revolution and the Covid-19 pandemic.
Economic growth slowed to 3.2% in the fourth quarter of 2021-22, compared with 7.7% last year, but at an annual rate of 6.6%.
Despite the better-than-expected annual figures, the government said economic growth had slowed amid “global political and economic developments”.
Egypt’s monetary policy has been in a dilemma since Russia invaded Ukraine in February.
Inflation hit a three-year high of 14.6 percent in July after Egypt devalued the pound, pushed up import prices and drained foreign exchange reserves from $7.8 billion since February to $33.1 billion in July.
Egypt is negotiating an International Monetary Fund loan to help ease the impact of the war in Ukraine, where 30 percent of the country’s 103 million people live in poverty.
But the talks have been going on for six months and have caught the attention of analysts.
“The fact that talks with the IMF have been delayed may suggest that some officials are reluctant to implement the IMF’s demands, preferring to rely on the support of the oil-heavy Gulf economies,” said Capital Economics in London.
“We need to speed up negotiations with the IMF,” said Hany Genena, an economist and lecturer at the American University in Cairo.
“Since last week, there has been a severe shortage of dollars from banks across industries to importers.”
Cairo had previously received a $12 billion IMF loan in 2016 to cut subsidies and devalue the pound.
In 2020, Egypt received two more loans, including $5.4 billion for reforms and $2.8 billion for the response to the new crown epidemic.
Genena said Egypt needs more “radical” reforms to restore its foreign exchange reserves, including the full float of the pound.
Last week, central bank governor Tarek Amer resigned as the yuan fell to a near-record low of 19.1 against the dollar.
It is unclear why Amer resigned, but Egyptian media believe it was because of his reluctance to implement a full float.
James Swanston of Capital Economics said the pound would need to depreciate to £25 against the dollar by the end of 2024 “to avoid a re-emergence of external imbalances”.
But investments worth $14.6 billion flowed out of the country in the first quarter of 2022, reflecting concerns about the war in Ukraine.
However, Capital Economics said the $22 billion worth of investment commitments from the Gulf states would “somewhat alleviate external financing concerns”.
One of Egypt’s slew of measures to protect foreign currency was its decision to let the pound fall 17% against the dollar in March.
The government said the electricity rationing was designed to achieve “an additional surplus – an average of 15% of the gas pumped to power stations – that could be exported and brought in hard currency.”
Energy-saving measures include “reducing lighting in streets and public squares”.
Egypt has been boosting its gas production capacity since 2018 and is now turning to energy-starved Europe, which is eager to reduce its reliance on Russian gas.
The government this month announced “$52 million a month in special assistance to nine million families,” but for many, the skyrocketing cost of living has taken a toll on enough.
Mahmoud al-Saeedy, a fruit salesman in Cairo, drained his savings to keep up with rising prices.
“Every 40 or 50 days I go back to my village in the south and I only have £600 ($31.30) to give to my family,” he told AFP.
“What can they do with it?”
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