Egypt left with few options as economy slumps
CAIRO - The Egyptian Central Bank’s failure to manage foreign currency reserves and the government’s inability to control inflation or offer innovative solutions are deepening Cairo’s economic crisis.
“The Central Bank has been pursuing policies that are making things worse,” economist Rashad Abdo said. “The economic crisis is getting out of control and the government’s options are limited.”
The government has taken up what it describes as its “only option”: borrowing from the International Monetary Fund (IMF). Cairo reached an initial agreement with the IMF for a $12 billion assistance package over three years. The loan will, however, raise Egypt’s foreign debt to $65 billion.
Economists said the loan would do nothing to bridge the budget deficit of almost $30 billion, boost foreign currency reserves or keep the economy running.
Egypt’s foreign currency reserves have fallen to $15.5 billion, down from $36 billion in 2010. The Central Bank is losing a foreign currency battle against black market traders, even after it had devalued the national currency, the pound, by almost 30% earlier this year.
The Central Bank is considering closing the nation’s foreign exchange offices and many black market foreign currency traders have been jailed.
Economists said this was an example of how monetary and financial policies are designed to treat symptoms, not the disease.
“This has been the case with everything here: The inflation, the decline in exports, the rise in imports and also the lack of foreign investment,” said Saeed Tawfiq, an economics professor at Ain Shams University. “Instead of closing down the foreign exchange offices, the government should treat these economic malaises.”
Consumer inflation in urban areas was 14.8% in July, exports fell by almost 40% last year and imports by 30%, putting pressure on foreign currency reserves.
Importers said they cannot get dollars for their deals from the banks and have to obtain them on the black market at higher rates. This is reflected in the prices of goods they import and sell in the local market.
Also significantly hurting the economy is the decline in tourism revenues that fell in the first eight months of 2016 by 74% compared with the same period last year.
“Real action must start right now if we want to rescue the economy from further deterioration,” Abdo said. “We must attract investments, reduce spending and bring tourists back or our country will be in for an economic disaster and very soon.”