News Analysis: Economists pin hopes on Egypt's diversified economy amid worldwide high inflation-Xinhua

News Analysis: Economists pin hopes on Egypt's diversified economy amid worldwide high inflation

Source: Xinhua

Editor: huaxia

2022-05-16 21:51:30

by Mahmoud Fouly

CAIRO, May 16 (Xinhua) -- Egyptian economists believe that the most populous Arab country's diversified economy is resilient enough to withstand the worldwide high inflation and supply chains shortages, and expect the Egyptian central bank to raise the deposit rate to rein in the surging domestic inflation.

Egypt's annual urban consumer inflation jumped to 13.1 percent in April, up from 10.5 percent in March, 8.8 percent in February and 7.3 percent in January, according to data from the state-run Central Agency for Public Mobilization and Statistics.

To contain the high inflation, the Central Bank of Egypt is expected to raise the interest rate after many countries have done so, especially following the U.S. Federal Reserve's recent sharpest rate hike since 2000, said Egyptian economist Rashad Abdo.

Abdo, head of the Egyptian Forum for Economic and Strategic Studies, said raising the interest rate can lure more cash in the market to the banking system, which will reduce the purchasing demand and in turn lower prices and inflation.

In addition, an interest hike will also encourage Egyptians to exchange their foreign currency to Egyptian pounds, not vice versa, which will bring the Egyptian banks more foreign currency, so the state can have sufficient foreign currency to finance its development plans, the economist noted.

Gamal Bayoumi, head of the Cairo-based Arab Investors Union (AIU), said the diversification of Egypt's economy can help it fend off the latest wave of high inflation.

"Egypt's economy is distinguished by being diversified. We have agriculture, trade, traditional industry, services, etc. When a sector suffers, the other holds it up," the AIU chief told Xinhua.

"We have the Nile River. We have electric energy that has greatly improved. We have the Suez Canal. We have tourism. So, it's a diversified economy that operates itself well," he added.

Egypt was among a few economies in the world that managed to achieve positive growth during the peak of the COVID-19 pandemic crisis in the 2019/20 fiscal year.

In its outlook on Egypt's Economic Update-April 2022, the World Bank said the recent surge in economic activity in Egypt has set the country "on track to achieve growth of 5.5 percent in FY 2021/22."

Bayoumi also downplayed the repercussions of the surges in food and energy prices caused by the ongoing Russia-Ukraine conflict.

Despite the fact that Egypt is the world's largest wheat importer, with most of its imports coming from Russia and Ukraine, the Arab country has many other sources for wheat imports besides the two countries, such as Australia, Canada, France and others, he said.

As for the energy sector, Egypt itself is a natural gas exporter, so the effect is limited, the AIU chief added.

Egypt's external debt increased to 145.5 billion U.S. dollars at the end of December 2021, with an 8-billion-dollar increase in just three months, amid current negotiations for a further financial push from the International Monetary Fund.

"Egypt has never faced a crisis because of foreign debts, nor has it ever been unable to pay off its foreign obligations," Bayoumi reassured, explaining the crisis warning by many economists.

"The debt increases, but the GDP grows faster. So, when you compare the debt to the GDP, the debt rises as a figure but it decreases as a percentage compared to the GDP," Bayoumi said.