Cairo (AFP) – To cope with the economic crisis caused by the war in Ukraine, Egypt found a solution: reduce public lighting to release energy and export more gas, in order to increase its foreign exchange reserves.
Russia’s invasion of Ukraine six months ago had an immediate impact on Egypt, the world’s largest wheat importer, which depends on these two former USSR countries for more than 80 % of its cereals.
The tourism sector, vital for Egypt, has also been affected by the conflict, reducing the flow of holidaymakers in a country which is still suffering from the 2011 revolution and the Covid-19 pandemic. Over the past three months, growth has plateaued at 3.2%, compared to 7.7% a year ago.
To compensate, the Prime Minister, Mostafa al-Madbouly, decided to reduce public lighting. Even Cairo’s famous Tahrir Square will soon be plunged into darkness, he said.
This measure is the subject of criticism. “The streetlights stay on during the day while for us, the bills are only increasing,” laments a thirty-something Cairote who prefers to keep his name quiet.
Dollar shortage
For the government, the objective is to “reduce by 15% the quantity of natural gas sent to power plants over one year” to export them for dollars. Because if Egypt became self-sufficient in gas in 2018, saving 220 million dollars each month in imports, it now wants to become a major exporter.
But for the economist Hani Genena, the problem comes from elsewhere. “The value of the Egyptian pound is artificially high, it forces (the state) to borrow abroad and runs the risk of finding itself in a dead end when it comes to repayment,” he explains to the AFP.
Already, he warns, “for a week, the banks can no longer provide importers with dollars”. Because foreign currency reserves are only 33.1 billion dollars today, once morest 41 billion in February.
While Cairo is calling for a loan from the IMF for the fourth time in six years, “negotiations must be accelerated”, pleads Mr. Genena.
Within six weeks, Egypt “must carry out hard reforms in the short term but which will make it possible to recover dollars”, affirms the specialist.
The first must be to “lower the exchange rate to 25 pounds for one dollar by the end of 2024” once morest 19.1 today, in order to “avoid an external imbalance”, that is to say once more fewer currencies, James Swanston of Capital Economics told AFP.
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Already in 2016, Egypt had obtained a loan of 12 billion dollars from the IMF in exchange for a brutal devaluation and austerity measures. Then, in 2020, two more of 5.4 and 2.8 billion dollars.
This time, she is negotiating to get even more, while two thirds of the 103 million Egyptians live below the poverty line or are on the verge of plunging into it.
Investor flight
According to local media, it is precisely on the devaluation that the negotiations with the IMF stumble. Quoting anonymous bankers, they claim that is why the head of the Central Bank, Tareq Amer, recently resigned.
The next day, he was replaced by Hassan Abdallah, a former senior party official of former president, Hosni Mubarak, overthrown by the “revolution” of 2011.
For Capital Economics, the extension of talks with the IMF “is surely a sign that some officials prefer to rely on the wealthy Gulf monarchies rather than implement IMF programs.”
In recent months, Saudi Arabia and Qatar have announced billions of investments in Egypt and Ryad even deposited five billion dollars in the Egyptian Central Bank at the end of March. But that might not prevent the melting of reserves, curb inflation at 14.6% or even reduce public debt by 90% of GDP.
Because opposite, “14.6 billion foreign investments left Egypt in the first quarter”, reports the Central Bank, because of the “concern of investors following the war in Ukraine”.
While waiting for gas money, the government has already released 312 million dollars to help the nine million poorest families for six months.
Mahmoud al-Saïdi, a traveling trader in Cairo, no longer has any savings, strangled by the cost of living.
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“I go back to my village in the south every 40 or 50 days and I only have 600 pounds to offer my family”, or regarding 30 euros, he told AFP: “What ‘they can do with that?’.
© 2022 AFP
