Egypt dims lights to increase foreign reserves

Egypt is experiencing a severe economic crisis as a result of the conflict in Ukraine, and the government has turned out the lights to conserve energy for export and to increase its hard currency reserves.

Egypt, the largest importer of wheat in the world, was immediately impacted by Russia’s invasion of Ukraine because it gets more than 80% of its grain from former Soviet Union countries.

Egypt is sending more natural gas abroad to boost its foreign currency reserves a decision that has drawn criticism after turning to the International Monetary Fund for a loan when the war broke out.

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Despite the government having declared electricity rationing this month, wasteful behavior is deplorable.

Unhappy Cairo citizen in his 30s who spoke on the condition of anonymity lamented, “I see lamps still operating during daylight hours… and we’re suffering from exorbitant electricity costs.”

The crucial tourism industry of the nation has also been negatively impacted by the situation in Ukraine, which has reduced the number of tourists visiting a nation still reeling from the 2011 uprising and the Covid-19 pandemic.

Despite an annual expansion of 6.6 percent, economic growth dropped to 3.2 percent in the fourth quarter of 2021–22 from 7.7 percent the previous year.

The government said that growth has slowed in the aftermath of “global political and economic changes” despite the higher-than-expected annual number.

Since Russia invaded Ukraine in February, Egypt’s monetary policy has been in a bind.

Following Egypt’s devaluation of the pound, which increased import costs and reduced foreign exchange reserves by $7.8 billion since February to $33.1 billion in July, inflation reached a three-year high of 14.6 percent.

Capital flight

Egypt is negotiating an IMF loan to aid the nation, where 30 percent of the 103 million people live in poverty, lessen the effects of the war in Ukraine.

But the six-month delay in the talks has analysts scratching their heads.

According to London’s Capital Economics, “the fact that talks with the IMF have dragged is presumably a hint that certain authorities are unwilling to comply with the Fund’s demands and would prefer to rely on support from the oil-flush Gulf states.”

Hany Genena, an economist and lecturer at American University in Cairo, said, “We need to speed up negotiations with the IMF.”

“Banks in several sectors have been severely short on dollars to provide to importers since last week.”

Cairo had previously obtained a $12 billion loan from the IMF in 2016, which came with conditions that it cut subsidies and devalued the pound.

2020 saw Egypt receive two more loans: $2.8 billion to address COVID and $5.4 billion connected to reforms.

To replenish its foreign exchange reserves, Genena claimed that Egypt needs to implement additional “drastic” measures, such as allowing the pound to fully float.

Tarek Amer, the governor of the central bank, stepped down last week as the currency fell to an almost all-time low of 19.1 to the dollar.

Amer’s departure was not fully explained, but Egyptian media speculated that it was due to his resistance to implementing a full float.

By the end of 2024, the currency must drop to 25 pounds to the dollar, according to Capital Economics’ James Swanston, “to prevent external imbalances recovering.”

However, $14.6 billion worth of assets left the nation in the first quarter of 2022 due to worries about the conflict in Ukraine.

However, according to Capital Economics, investment commitments from Gulf nations totaling $22 billion will “go some way toward allaying fears about external finance.”

Gas lifeline

Egypt took a number of steps to protect its foreign currency, including allowing the pound to depreciate by 17% versus the US dollar in March.

According to the government, electricity rationing aims to create “an additional surplus” that may be exported and generate hard currency, amounting to an average of 15% of the natural gas pumped to power plants.

“Reducing lights in streets and public squares” was one of the energy-saving techniques.

Egypt has been increasing its natural gas production capacity since 2018, and it is now aiming its natural gas production at an energy-hungry Europe that wants to reduce its reliance on Russian gas.

However, for many, the rising cost of living had already done enough harm. This month, the government announced “exceptional aid to nine million families at a cost of $52 million per month.”

Cairo fruit vendor Mahmoud al-Saeedy has spent all of his cash attempting to keep up with the escalating cost of goods.

Every 40 to 50 days, I go back to my town in the south, but I only have 600 pounds ($31.3) to present to my family, he told AFP.