Egypt's annual inflation rate increased to 4.5 per cent in October from 3.7 per cent in September, the Central Authority for Public Mobilisation and Statistics (CAPMAS) has said,
attributing October’s higher headline rate partly to increases in the prices of food and education with the new school year starting in the second half of September.
The hike in inflation followed a limited increase in September’s figure, which came in at LE3.7 per cent after recording 3.5 per cent in August, its lowest level since 2005. However, it still remains below the Central Bank of Egypt’s (CBE) target rate of six to 12 per cent. In 2017, inflation recorded its highest-ever level to reach 33 per cent in July on the back of a series of International Monetary Fund (IMF)-prescribed reforms that included removing subsidies, floating the Egyptian pound, and introducing a value-added tax (VAT).
The Monetary Policy Committee (MPC) of the CBE is set to convene on Thursday to decide if changes in interest rates are warranted. Six weeks ago, the MPC reduced interest rates by 0.5 per cent, its first such decision since March when it cut rates by three per cent in one go to revive the economy in the wake of the outbreak of the coronavirus.
Observers believe the CBE will keep rates unchanged to support the pound and more importantly also to maintain foreign investors’ interest in local-currency denominated treasury bills. Foreigners have bought some $21 billion worth of Egyptian treasuries. CBE rates currently stand at 9.75 per cent for loans.
The government earlier this year agreed with the IMF on two loans with a total value of $8 billion. One of the two loan facilities stipulates that Egypt will have consultations with the IMF board if year-on-year inflation falls below four per cent, as it did in September.
Reserves up again
FOR THE FIFTH consecutive month, Egypt’s net international foreign reserves are following an upward trend. The figure increased by $800 million during October, climbing to $39.2 billion in September, equivalent to eight months of imports.
The reserves have been bolstered by capital inflows and a receding trade balance, according to brokers Prime Securities. “Foreign appetite in the local debt market has gained huge momentum since August, thanks to lucrative real yields, the financing agreement with the IMF, and resilient macro fundamentals,” it said in a research note.
Foreign holdings of local debt more than doubled to $21.1 billion by mid-October, up from $10.4 billion by the end of May. According to the most recently available data published by CAPMAS, the trade deficit fell in August by 14 per cent year-on-year, as both imports and exports declined by 10 per cent and three per cent, respectively.
Egypt’s reserves reached their highest-ever level of $45 billion in February, but followed a downward trend between March and May as the CBE withdrew from them to cover capital outflows, commodity imports, and debt repayments in the first months of the coronavirus pandemic.
STC in talks over VFE
TALKS between the Saudi Telecom Company (STC) and the Vodafone Group concerning the acquisition of the first 55 per cent stake of Vodafone Egypt (VFE) are still ongoing, Mohamed Abdallah, VFE’s CEO, told reporters at a press conference this week.
The two companies signed a memorandum of understanding in January, according to which STC was supposed to complete its due-diligence process and submit an offer. After postponing the deadline to submit an offer in April and then again in July, Vodafone said the dialogue with STC was still open in September.
This came after STC was unable to agree a price with Vodafone. The Saudi company initially submitted a non-binding bid of $2.39 billion for a 55 per cent stake, but talks to reduce the valuation later broke down. The deal would have been STC’s biggest in over a decade and value Vodafone Egypt at $4.4 billion.
The remaining 45 per cent of VFE is owned by Telecom Egypt (TE), Egypt’s fixed-line monopoly and owner of the WE mobile network. TE might exercise its right of first refusal and buy the 55 per cent stake itself, Media outlets revealed in September that TE was in talks with five banks to finance its purchase of the stake.
In another development, VFE also said it would start using its new frequency spectrum in 18 to 24 months’ time. The 20-Megahertz band it acquired recently for $540 million will be used to increase data usage and improve voice services, Abdallah said.
No new taxes
THE MINISTRY of Finance will not impose any new taxes, whether personal or corporate, Mohamed Maait, the minister of finance, told a TV talk show on Monday.
The government has introduced a one per cent tax on salaries to help cover the costs of the coronavirus pandemic. All employees in both the public and the private sectors will be subject to the new tax, which will be in place for 12 months until the end of the 2020/2021 fiscal year in June. Pensioners will also pay the tax, but with only 0.5 deducted from their monthly allowances. The proceeds will be placed in a new account for epidemics and natural disasters at the Central Bank of Egypt.
Maait put the overall pandemic-induced decline in revenues during the last quarter of 2019-20 at LE220 billion. The three-month lockdown earlier this year had also resulted in a severe drop in both tax receipts and tourism revenues, he said. Meanwhile, state revenues had witnessed a 18.4 per cent hike in the first quarter of 2020-12, thanks to a 14.1 per cent increase in tax revenues.
In March, the government allocated LE100 billion to cover losses caused by the pandemic. Maait said that LE65 billion of this sum had been used on purchasing medical supplies, staple goods, and employment grants for day labourers. He also pointed to the lower than expected revenues of the new real-estate tax. This had yielded only LE5 billion, and he said the ministry was working to simplify procedures to increase revenues.
*A version of this article appears in print in the 12 November, 2020 edition of Al-Ahram Weekly