Thursday,21 February, 2019
Current issue | Issue 1373, (14 - 20 December 2017)
Thursday,21 February, 2019
Issue 1373, (14 - 20 December 2017)

Ahram Weekly

The fruits of reform

Thirsty for good news, observers of the local economy were treated to an overdose of heart-warming news last week, reports Sherine Abdel-Razek


A four per cent drop in inflation, a noticeable improvement in the balance of payments, and a new loan from the World Bank – it was an eventful week on the economic front in Egypt last week.

Inflation rates reached their highest level in 30 years in July, before dropping to 26 per cent in November compared to 30.8 per cent in October, according to figures released by the Central Agency for Public Mobilisation and Statistics (CAPMAS) last week.

However, the drop would not immediately mean a drop in prices, said Abu Bakr Al-Guindi, the head of CAPMAS, on a TV talk show last week. The decline in the rate of the increase would only mean that prices would increase at a slower rate, he said.

“The drop in inflation was driven by the unwinding impact of the devaluation of the pound, hikes in administered prices, and the introduction of a value-added tax (VAT) last November.  But the effects of these are now falling out of the year-on-year price comparisons,” Capital Economics, a London-based consultancy, commented in a statement.

Inflation has been falling for four consecutive months since peaking at 33 per cent in July. November’s reading was the lowest so far this year. More indicative month-on-month inflation declined to 0.97 per cent from 1.10 per cent in October, with Pharos Holding, an investment bank, attributing the earlier rise to an increase in cigarette prices.

Finance Minister Amr Al-Garhi has said he expects the inflation rate to drop to 20 per cent in January and to 13 to 14 per cent by August 2018.

Inflation has been on the rise since the government’s floatation of the currency in November 2016 as part of an economic overhaul that led to its finalising a finance deal of $12 billion with the IMF.

This week’s announced improvement in the country’s balance of payments, which reflects Egypt’s trade and economic relations with the rest of the world, can be considered one of the early fruits of the reform programme.

The overall balance of payments surplus rose to $5.1 billion from $1.9 billion during the first quarter of 2017/2018, compared to the same quarter of 2016/2017. The trade deficit narrowed by five per cent to $8.9 billion for the quarter, largely on the back of an 11 per cent increase in exports to $5.8 billion.

According to Central Bank of Egypt (CBE) figures, Egypt’s current-account deficit fell to $1.6 billion due to a hike in tourism revenues between July and September to $2.7 billion from $767.7 million a year earlier.

Remittances soared by a whopping 40 per cent to $6 billion mainly because of a 50 per cent drop in the value of the currency.

Net Foreign Direct Investment (FDI) fell slightly to $1.6 billion in the first quarter of 2017 from $1.9 billion in the same period last year despite an 84.2 per cent rise in investment in the oil industry, CBE data showed.

Egypt has also benefited from an increase in foreign investment in Egyptian securities to hit $19 billion as of 6 December this year. The World Bank’s decision to disburse another tranche of its financing agreement with Egypt further bolstered positive sentiment.

On Friday, the bank signed an agreement to disburse a $1.15 billion loan. This is the last in a series of three annual Fiscal Consolidation, Sustainable Energy and Competitiveness Development Policy Financing (DPF) loans, to a total value of $3.15 billion. Approved in December 2015, the DPF loan agreement has a 35-year maturity with a grace period of five years.

The loan was designated to support the government’s economic reform programme by funding small and medium-sized enterprises, strengthening public finances and creating jobs.

“Egypt has shown a sustained commitment to implementing inclusive reforms. We are privileged to support the country on its path to achieving its full potential and improving living standards for all Egyptians,” the World Bank quoted its Chief Executive Officer Kristalina Georgieva, as saying.

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