Cairo: The economic crisis sparked by the Ukrainian war has cast a dark shadow on Egypt’s streets as the government dims lights to free up energy for export and boosts its foreign exchange reserves. Russia’s invasion of Ukraine had an immediate impact on Egypt, the world’s largest wheat importer, which relies on former Soviet countries for more than 80% of her grain. Seeking loans from the International Monetary Fund after the war broke out, Egypt is exporting more natural gas abroad to boost its foreign exchange reserves.

The government announced power rationing earlier this month, but signs of wasteful spending sparked contempt. “During the day you can still see the streetlights on…and we are suffering from high electricity bills,” said a disgruntled Cairo resident in his 30s who spoke on condition of anonymity. Ukraine’s important tourism sector has also been affected by the Ukrainian conflict, cutting off the flow of holidaymakers to the country still suffering from the 2011 revolution and the Covid-19 pandemic.

Economic growth slowed to 3.2% in the fourth quarter of 2021-22 from 7.7% last year, but expanded at 6.6% for the year. Despite better-than-expected annual figures, the government said growth had slowed in the wake of “global political and economic developments.” Monetary policy in Egypt has been caught between a rock and a hard place since Russia invaded Ukraine in February. Inflation hit a three-year high of 14.6% in July after Egypt devalued the pound, boosting the price of imports and pushing foreign exchange reserves down $7.8 billion in July from February. amounted to $33.1 billion.

Egypt is negotiating IMF loans to mitigate the effects of the Ukraine war on a country with 30% of its 103 million people living in poverty. However, negotiations have been going on for her six months and are frowned upon among analysts. Capital Economics in London said: “The fact that negotiations with the IMF have dragged on is a sign that some officials are reluctant to comply with IMF demands, preferring to rely on support from the Gulf economy for an oil flash. It may indicate that there is a

“Negotiations with the IMF need to be sped up,” said Hany Jenena, an economist and lecturer at the American University in Cairo. “Since last week, there has been a significant shortage of dollars offered by banks in various sectors to importers.” Cairo previously secured his $12 billion IMF loan in 2016, but this required a reduction in subsidies and a devaluation of the pound. In 2020, Egypt received two more loans. This includes his $5.4 billion related to reform and his $2.8 billion to deal with Covid.

Genena said Egypt needed more “drastic” reforms, including a full swing of the pound, to restore its foreign exchange reserves. Central bank governor Talequamer stepped down last week as the currency plummeted to his all-time low of $19.1 to the dollar. It is unclear why Amer resigned, but Egyptian media suggested it was because he was reluctant to implement a full float.

Capital Economics’ James Swanston said the currency needed to depreciate to £25 to the dollar by the end of 2024 “to avoid re-establishing external imbalances”. However, he saw $14.6 billion worth of investments out of the country in the first quarter of 2022, reflecting concerns over the Ukrainian war. But Capital Economics said the $22 billion worth of investment pledges from the Gulf nations “help alleviate concerns about external funding.”

Among Egypt’s string of measures to preserve its foreign currency was its decision to see the pound depreciate 17% against the US dollar in March. According to the government, the power distribution aims to “achieve an additional surplus, averaging 15% of the natural gas supplied to the power plant, which will be exported to bring in foreign currency”. Among the measures to save energy was “reducing lighting in streets and public squares.”

Egypt has been ramping up its natural gas production capacity since 2018 and is now setting its sights on energy-hungry Europe eager to reduce its reliance on Russian gas. 10,000 households at a cost of $52 million a month,” but for many, the high cost of living had already done enough damage. Mahmoud Al-Saidi, a fruit salesman in Cairo, has used up his savings to keep up with rising prices. “I go back to my southern village every 40 or 50 days and give my family only £600 ($31.3),” he told AFP. “What can they do with it?” – AFP

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