Egypt's declining economy is collapsing
September 30, 20244 Mins Read
International Desk: Egypt's debt-ridden economy continues to collapse. The country's debt is now more than 90 percent of gross domestic product (GDP). The Egyptian pound continues to lose value, foreign exchange reserves are running out, and inflation is on the rise. Israeli aggression in Gaza and Lebanon is putting the country's fragile economy in a deeper crisis.

Economy-and-Social-Conditions-of-Egypt

Depression in the tourism sector: Visitors from all over the world flock to see Egypt's pyramids, museums, resorts and monuments. Tourism sector is one of the sources of national income of the country. The Covid-19 pandemic has devastated the country's tourism sector. Little by little, Egypt was moving towards recovery. In 2022, about 3 million Egyptians were engaged in the tourism industry. Egypt's tourism sector has been hit hard since the start of the Israeli invasion of Gaza last year. Experts fear that Egypt's tourism revenue will decline by nearly 30 percent this year compared to 2023. As a result, the country's foreign exchange reserves may decrease by about 10 percent. The GDP and the entire economy will shrink.

Amr Salah Mohammad, an assistant lecturer at George Mason University, said, 'Tourism has collapsed due to the proximity of the Sinai Peninsula. In the financial year 2022-23 also, the revenue from this sector was 13.63 billion dollars. If the war continues, there is a serious risk of deepening Egypt's recession.'

Income drops from Suez Canal: The Houthis have been launching missile and drone attacks on Israeli and allied commercial ships in the Red Sea since November last year in response to Israeli aggression. As a result, many shipping companies are not moving their ships through the Suez Canal connecting Asia and Europe. Egypt is facing economic losses. Egypt earned $9.4 billion in revenue from the Suez Canal in the 2022-23 fiscal year. Revenue from the Suez Canal fell by nearly 50 percent.

Rising Inflation: Meanwhile, Egypt's inflation rose in August after five consecutive months of decline. According to the Central Agency for Public Mobilization and Statistics, the country's state statistics agency, the annual inflation rate reached 26.2 percent last month, up from 25.7 percent in July. According to an analysis by investment banking firm Naim Holdings, inflation was forecast at 24.8 per cent for the same period this year after a low of 2.47 per cent in August last year. However, CPI was forecast to increase by 1.24 percent during this period.

Increase in cost of transport sector contributed to rise in inflation. Consumption rose 10.7 percent in August on a monthly basis and 29.8 percent on an annualized basis. In July, the government increased the prices of fuel including diesel. Analysts at the time had predicted an increase in transport costs. The decision to raise fuel prices comes at a time when the country's continued debt program is under review by the International Monetary Fund. Food and beverage prices rose 1.8 percent in August from July, a record 28.1 percent year-on-year. On a monthly basis, prices of clothing and footwear increased by 1.1 percent, housing and utilities by 7 percent, furniture and home appliances by 1.7 percent, and health care by 3.4 percent.

Inflation has suddenly increased due to recent cuts in government subsidies. The country's power and energy ministry said in a statement last week that fuel prices have risen by up to 15 percent and electricity costs by 15-40 percent.

Financial analyst Mohammad Ragab said that due to rising inflation, the Central Bank of Egypt is likely to raise interest rates to a maximum of 27.25 percent at its next meeting on October 17. As a result, the interest rate will be increased for the fourth consecutive time. Most economists predict the country's interest rates will fall by the end of this year or early next year.

The general Egyptians' frustration with rising commodity prices is evident in inflation data. About 30 percent of the country's population of 104 million are poor or near the poverty line. High food prices are playing a major role in rising inflation.

Four and a half million Sudanese refugees have crossed Egypt's southern border since the conflict began in Sudan, further straining Egypt's already troubled economy. Against this backdrop, Egypt has built a wall two miles west of the Egypt-Gaza border to avoid a possible such situation. The country has refused to accept Gaza's Palestinians as refugees. Already, the Gaza-war has spread to Lebanon. As a result, experts do not see any possibility of Egypt's economy turning around in the near future.