(Cairo) To cope with the economic crisis caused by the war in Ukraine, Egypt has found a solution: reduce public lighting to release energy and export more gas, in order to increase its reserves of exchange.
Posted at 10:05 a.m.
Russia’s invasion of Ukraine six months ago had an immediate impact on Egypt, the world’s largest wheat importer, which depends on these two former USSR countries for more than 80 % of its cereals.
Egypt’s vital tourism sector has also been hit by the conflict, reducing the flow of holidaymakers to a country still suffering from the 2011 revolution and the COVID-19 pandemic. Over the past three months, growth has plateaued at 3.2%, compared to 7.7% a year ago.
To compensate, the Prime Minister, Mostafa al-Madbouly, decided to reduce public lighting. Even Cairo’s famous Tahrir Square will soon be plunged into darkness, he said.
This measure is the subject of criticism. “The streetlights stay on during the day while for us, the bills are only increasing,” laments a thirty-year-old from Cairo who prefers to keep his name quiet.
Dollar shortage
For the government, the objective is to “reduce by 15% the quantity of natural gas sent to power plants over one year” to export them for dollars. Because if Egypt became self-sufficient in gas in 2018, saving 220 million US dollars each month in imports, it now wants to become a major exporter.
But for the economist Hani Genena, the problem comes from elsewhere. “The value of the Egyptian pound is artificially high, it forces (the state) to borrow abroad and runs the risk of being at an impasse when it comes to repayment,” he explains to the AFP.
Already, he warns, “for the past week, banks can no longer provide importers with dollars”. Because foreign currency reserves are only 33.1 billion dollars today, against 41 billion in February.
While Cairo is calling for a loan from the IMF for the fourth time in six years, “negotiations must be accelerated”, pleads Mr. Genena.
Within six weeks, Egypt “must carry out hard reforms in the short term but which will make it possible to recover dollars”, affirms the specialist.
The first must be to “lower the exchange rate to 25 pounds for one dollar by the end of 2024” against 19.1 today, in order to “avoid an external imbalance”, that is to say still fewer currencies, James Swanston of Capital Economics told AFP.
Already in 2016, Egypt secured a $12 billion loan from the IMF in exchange for a sharp devaluation and austerity measures. Then, in 2020, two more of 5.4 and 2.8 billion dollars.
This time, she is negotiating to get even more, while two thirds of the 103 million Egyptians live below the poverty line or are on the verge of plunging into it.
Investor flight
According to local media, it is precisely on the devaluation that the negotiations with the IMF stumble. Quoting anonymous bankers, they claim that is why the head of the Central Bank, Tareq Amer, recently resigned.
The next day, he was replaced by Hassan Abdallah, a former senior party official of former president, Hosni Mubarak, overthrown by the “revolution” of 2011.
For Capital Economics, the extension of talks with the IMF “is surely a sign that some officials prefer to rely on the wealthy Gulf monarchies rather than applying IMF programs.”
In recent months, Saudi Arabia and Qatar have announced billions of investments in Egypt and Riyadh even deposited five billion dollars in the Egyptian Central Bank at the end of March. But that could not prevent the melting of reserves, curb inflation at 14.6% or even reduce public debt by 90% of GDP.
Because opposite, “14.6 billion foreign investments left Egypt in the first quarter”, reports the Central Bank, because of the “concern of investors after the war in Ukraine”.
While waiting for gas money, the government has already released 312 million dollars to help the nine million poorest families for six months.
Mahmoud al-Saïdi, a traveling trader in Cairo, no longer has any savings, strangled by the cost of living.
“I go back to my village in the south every 40 or 50 days and I only have 600 pounds to offer my family”, or about 30 dollars, he told AFP: “What can they do with that? “.