Controlling inflation more important than exchange rate: PM to Egypt's Economic Conference 2022

Amr Kandil , Sunday 23 Oct 2022

Egypt’s Prime Minister Mostafa Madbouly affirmed on Sunday that Egypt prioritises curbing inflation over the issue of exchange rate, stressing that the devaluation of the Egyptian pound does not mean that the economy is in a bad situation.

PM Madbouly
Egyptian Prime Minister Mostafa Madbouly speaking during the opening session of Egypt's Economic Conference 2022 that kicked off on Sunday in the New Administrative Capital

 

Madbouly made the remarks in the opening session of the Egypt's Economic Conference 2022 that kicked off on Sunday in the New Administrative Capital east of Cairo in the presence of President Abdel-Fattah El-Sisi.

Since the onset of the Russian-Ukrainian war on 24 February, the Egyptian pound has lost over 20 percent of its value against the US dollar, plunging to a new low amid a shortage in foreign currency.

On Sunday, the dollar rate reached EGP 19.6 across almost all banks in Egypt, up from around EGP 15.77 in early March.

Meanwhile, Egypt has been working on controlling the inflation rate, which has risen to a four-year high of 15 percent since February.

Senior government officials, high-profile economists, intellectuals, thinkers, specialists, businessmen, as well as representatives of more than 80 political parties and parliament members are attending the three-day event.

The conference is the fourth of its kind in Egypt over the past four decades, the last of which was in 2015 amid the start of economic reforms and waves of terrorist attacks that hit the country, Madbouly noted.

In a prolonged speech, Madbouly reviewed various economic challenges and indicators over the past decade, urging the conference to “agree on a clear roadmap for the most important economic sectors.”

He stressed that this roadmap should be translated into executive plans to be implemented over the near future.

Egypt, along with the rest of the world, has experienced economic difficulties due to the Russia-Ukraine crisis, Madbouly said, highlighting the global slowdown in growth, unprecedented increase in inflation rates, capital outflow and rising global debt.

Egypt has seen capital outflow worth $20-25 billion over the past period amid the crisis, Madbouly noted.

Madbouly said that Egypt has experienced such outflows before, pointing to the loss of $477 billion in 2011 and 2013, including $20.3 billion in foreign reserves.

Reviewing economic indicators

Reviewing economic indicators, Madbouly said Egypt’s public debt to its gross domestic product (GDP) ratio has been brought down from almost 103 percent in 2016 to 81 percent ahead of the coronavirus pandemic.

The pandemic, however, reversed this path.

Madbouly expects debt-to-GDP ratio to reach 90 percent during this fiscal year against the backdrop of the Russia-Ukraine war but stressed that the state aims at bringing the ratio down to 71.9 percent by 2027.

Egypt’s foreign debt to GDP ratio also dropped from 150 percent to 31.7 percent in the 1990s thanks to an agreement with Paris Club in 1991, under which Western nations agreed to cut Egypt’s debt by a total of $43 billion, the premier said.

The Paris Club has 22 permanent members from major creditor countries with the aim of finding sustainable solutions for debtor countries that experience payment difficulties.

By the end of June, Egypt’s foreign debt reached 34.1 percent, Madbouly said, noting that safe levels range from 30 to 50 percent.

The premier, however, noted that Egypt’s high foreign-debt-to-export and the debt-service-to-export ratios are beyond safe levels.

“It is the role of all of us as a state, the business community and the private sector to find out how to work on bringing these numbers back to the safe levels in Egypt,” Madbouly said.

Madbouly noted that 73 percent of Egypt’s foreign debts are medium- and long-term commitments.

For five consecutive years, Egypt has achieved primary surplus, which means that country’s income has been higher than government spending excluding the debt service, Madbouly explained.

He said that this enables the country to pay off its debts, noting that Egypt’s agreements with the International Monetary Fund (IMF) always includes the condition that Egypt achieves this surplus.

‘Last touches’ to IMF programme

In this regard, Madbouly said Egypt is “putting the last touches” on its new economic reform programme with the IMF.

This comes a week after the Central Bank of Egypt (CBE) and the Ministry of Finance announced that Egypt and the IMF have reached an agreement on economic and structural policies and reforms.

Egypt had filed a request with the IMF in March to secure a new loan under a fresh economic reform programme to address the harsh impacts of the Russian-Ukrainian conflict on the Egyptian economy.

“The Egyptian state has been able to restore stability to the economy despite the difficulty of the political and economic crises,” Madbouly said during his speech.

The premier, however, stressed that Egypt has been one of the countries most affected by the Russia-Ukraine crisis.

After the worst of the coronavirus pandemic crisis was over, Egypt managed to achieve a growth rate of nine percent during the first half of the fiscal year 2021/2022.

“However, the Russia-Ukraine crisis has applied a great pressure on us, like all countries worldwide,” Madbouly said, noting that the crisis has hamstrung Egypt’s economic recovery.

The premier noted that Egypt is still facing “chronic” challenges to development, including overpopulation, adding that the country’s population has increased by 60 million over the past four decades.

Empowering the private sector

To improve the economy, Egypt has implemented major national projects over the past decade with a cost of EGP seven trillion, Madbouly said. More than 90 percent of these projects have been implemented by the private sector, he added.

The private sector’s share of GDP in Egypt hit 75 percent in the fiscal year 2021/2022, he pointed out.

On Saturday, the cabinet also indicated that the conference would focus on Egypt’s State Ownership Policy Document, which aims to raise the private sector's contribution to the national economy to over 65 percent.

Focus of conference

The conference was called for by El-Sisi in early September when he urged the government to organise an economic conference to discuss the present economic conditions and ways of improving it.

The conference will include three tracks: macroeconomic policies, widening the scope of private sector contribution to the national economy and drawing up a roadmap for economic priorities, the cabinet noted on Saturday.

In addition, El-Sisi has instructed Prime Minister Madbouly to bring up eight questions raised by the national dialogue's subcommittees on the government's economic policies for debate at the conference.

The conference will also have roundtable sessions with the participation of government representatives, including the prime minister, as well as intellectuals, economists and representatives of political parties.

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