Egypt’s annual inflation rate touched 39.7 percent in August, an all-time high as the Arab world’s most populous country grapples with a crushing economic crisis, according to official numbers released on Sunday.
It follows a previous high of 38.2 percent in July and comes amid a relentless decline that has seen the currency lose half its value against the US dollar since early last year.
According to the state statistics agency CAPMAS, food and beverage costs alone increased 71.9 percent year on year.
The import-dependent country’s economic crisis was triggered by Russia’s invasion of Ukraine last year, which disrupted critical food supplies and rattled global markets.
Investors drained billions of dollars from Cairo’s foreign reserves, which are nevertheless boosted by contributions from wealthy Gulf allies whose commitments to buy Egyptian state assets have fallen short of government expectations.
According to the World Bank, even before the present crisis, 30% of Egyptians were living below the poverty line, with another 30% considered vulnerable to sliding into poverty.
Egypt, which has a population of more than 105 million people, has relied on bailouts in recent years from both oil-rich Gulf neighbors and the International Monetary Fund.
According to Ministry of Planning data, the country’s external debt has tripled in the last decade, reaching a new high of $165.4 billion this year.
According to Italian Institute of International Affairs researcher Robert Springborg, Egypt’s economic model, in which the military plays a prominent role, is based on “profligate borrowing for prestige projects with limited economic benefits.”
The crowning jewel of the government’s projects is the $58 billion New Administrative Capital that experts have called “a vanity project”.
Delayed IMF programme
The IMF approved a $3 billion loan to Egypt last year, contingent on “a permanent shift to a flexible exchange rate regime.”
The smaller-than-expected loan was designed to free up funds from other sources, especially regional allies.
However, Egypt has failed to meet its financial objective, and the IMF has yet to provide its initial appraisal of the program or the second tranche of the loan. Both were supposed to arrive in March.
The IMF and Gulf capitals have sought a fully flexible exchange rate, economic reforms, and an end to the military’s infamously murky business dealings.
Despite persistent rumors of a further devaluation, officials have maintained the pound anchored at roughly 31 Egyptian pounds to the US dollar since January.
Consumer prices have continued to climb gradually, increasing the strain on hard-pressed families.
Severe currency shortages have also had a significant impact on the economy, reducing imports and driving a parallel currency market to rise up to 25% higher than bank rates.
Remittances from Egyptians living abroad, the country’s main source of foreign currency, have been declining since the crisis began, as people have turned to the secondary market to send money home.
The central bank reported a 26.1 percent drop in remittances between July 2022 and March 2023, one of several “volatile, vulnerable” sources of foreign money on which Egypt relies, according to Springborg.
Cairo’s foreign reserves have gradually increased since the crisis began, reaching $34.9 billion in August, according to the central bank, which is still $7 billion less than before the Ukraine war.
According to the central bank, around $29 billion of those are deposits from affluent Gulf allies.