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The economic woes of the big countries have intensified, and the supply of foreign exchange has become a problem.
Feb 01,2024
Under the influence of many unfavorable factors such as the Fed's interest rate hike, the Palestinian-Israeli conflict, and the Russian-Ukrainian conflict, several countries in the Middle East suffered from it in 2023, with currency devaluation, soaring inflation, and even middle-class families returning to poverty overnight, seriously affecting their imports.
Egypt is one of the most affected countries.
The local currency plummeted
The Egyptian currency, the Egyptian pound, continued its decline of half its value in 2022.
In October 2023, a new round of Palestinian-Israeli conflict broke out, and the negative sentiment brought about by the conflict once again hit the Egyptian exchange rate market. Although the official exchange rate remained unchanged, the Egyptian pound fell to an all-time low in the parallel market.
Chinese people who have recently gone to Egypt have been handed down a money-saving trick: when in Egypt, try to exchange cash for Egyptian pounds in the market instead of using credit cards.
The reason is that the credit card exchange rate is the official exchange rate of Egypt, which has been maintained at around 30.85 Egyptian pounds per US dollar since March last year. On January 24, the exchange price of Egyptian pounds in the market has fallen to around 65 Egyptian pounds per US dollar, more than double the official exchange rate.
The depreciation of the Egyptian pound has accelerated in the past two years, making it one of the worst performing currencies in emerging markets.
Anyone who does foreign trade knows that when a country's local currency falls against the U.S. dollar, it means that its purchasing power weakens, which will increase import costs and reduce the country's importers' willingness to purchase.
Industry insiders said: "The shortage of foreign exchange has caused difficulties in external payments. Many foreign exporters have lost confidence in Egypt, which has forced the import of goods to drop sharply."
The Egyptian government has also introduced policies to restrict imports, especially parts and accessories for passenger cars, automobiles and tractors, propylene polymers and mobile phones.
Taking automobiles as an example, according to a report by the Automotive Information Council (AMIC), from January 2023 to the end of June 2023, passenger car sales in Egypt fell 71% year-on-year to only 26869.
Egypt's foreign exchange reserves are already stretched. As an important source of foreign exchange, the Suez Canal has been plagued by Houthi armed forces since the end of last year, which has made the Egyptian economy, which is already in deep crisis, even worse.
Royalties earned from Suez Canal shipments are understood to account for nearly 8 percent of Egypt's government revenue.
Usama Rabie, chairman of the Suez Canal Authority, said that from January 1 to 11, 2024, 544 ships passed through the Suez Canal, a decrease of 30% year-on-year, and dollar revenue decreased by 40% year-on-year.
Revenue in the first week of January fell 41% year-on-year, according to the Waterway Authority.
Paul Toure, director of the French Advanced Institute of Marine Economics, said that the reduction in revenue from the Suez Canal "is not a problem for one month, but it will be worrying for two consecutive months".
The limited availability of foreign exchange in the Egyptian economy has put additional pressure on the financing position of Egyptian banks. As a result, many banks have decided to further reduce credit card foreign currency transaction limits.
The Egyptian authorities are expected to devalue the Egyptian pound (EGP) beyond the current exchange rate of 31 EGP/USD to bring it closer to the parallel market exchange rate (about 60 EGP/USD). This move to increase exchange rate flexibility is in line with the objective of the IMF's existing $3 billion programme.
High inflation
Under the triple attack of rising prices, high inflation and devaluation of the currency, the life of the Egyptian people has become more and more difficult.
According to published data, Egypt's inflation rate in 2023 fluctuated at a high level far above normal.
According to data released by Egypt's Central Bureau of Public Mobilization and Statistics on January 10, Egypt's annual overall inflation rate fell to 35.2 percent in December 2023, but was much higher than the 21.9 percent recorded in December 2022.
Fortunately, this is the third consecutive month of decline in Egypt's inflation rate, which peaked in September of that year in 2023.
The prices of many commodities in Egypt have doubled within a year. Among them, food and beverages and other livelihood products have been the most affected. Many people have to significantly reduce their purchases of meat, fruits and dairy products. Some essential foods have now become Egyptians. Luxury.
For example, a 370-gram bottle of Nestle condensed milk cost 47 Egyptian pounds at the end of 2022, but by the end of 2023, it had risen to 89 Egyptian pounds, some places were out of stock, and the net had risen to 143 Egyptian pounds. A pair of high heels sold for 450 Egyptian pounds in September 2023 and 899 Egyptian pounds by the end of the year. Onions rose from 10-15 Egyptian pounds per kilogram to 55-65 Egyptian pounds......
In October last year, Egypt, which could not bear prices, suspended tariffs on a variety of basic commodities for six months to reduce the prices of related commodities by 15% to 25%. Related commodities include legumes, dairy products, white cheese, mixed oils, pasta, sugar, lentils, poultry products, eggs and rice.
Egyptian Prime Minister Madbouli said that this move will have a positive impact on the supply of necessities and market stability, and curb inflation, especially food prices.
As prices rise and the bottom people are full of grievances, many Egyptians have been driven out of the middle class, and the low-income group, which accounts for 1/3 of the country's population, has to cut back on necessities to make ends meet.
Inflation has not only hit Egyptians' spending power, but also undermined their confidence in the future.
Although Egyptian Minister of Trade and Industry Samir said that the government will further simplify the procedures for the release of imported goods at the port, Egypt's current problem is that it has no money to import.
Foreign traders exporting to Egypt must pay attention to the risk of foreign exchange collection!
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