The International Monetary Fund (IMF) recently released a report indicating that Egypt’s economy is beginning to recover after a challenging period characterised by weak economic activity and foreign exchange shortages. The first half of the fiscal year 2023–2024 saw a slowdown in growth to an average of 2.5%; however, the IMF sees a path toward a stronger recovery.
The release of the IMF’s review on Egypt has identified several encouraging advancements. The market determines the value of the Egyptian pound since the official and parallel exchange rates were unified in early March. This has resulted in a significant increase in daily interbank foreign exchange turnover, a narrowing of the spread between the official rate and market-clearing rates, and elimination of the foreign exchange backlog at banks.
Inflation has generally decreased since September 2023, even though it is still high. In May 2024, it reached its lowest point since January 2023. It is anticipated that the monetary policy hike in March and the government’s reduction in monetary financing will contribute to further inflation containment in the months to come.
The conditions for domestic financing have greatly improved since the policy rate hike and the unification of exchange rates. The government has issued more longer-term T-bills and is depending more on the weekly T-bill auctions. The amount of local currency T-bills and T-bonds held by non-residents has also greatly increased.
The average bank is profitable, liquid, and well-capitalised, and the banking system is still stable. Banks’ net foreign asset positions have sharply increased following the announcement of the Ras El-Hekma deal and the conclusion of the first and second reviews under the Extended Fund Facility (EFF) arrangement.
However, the IMF assessment does recognise several dangers and difficulties the Egyptian economy faces. Foreign exchange shortages are still an issue, especially in the non-oil sector, even though the situation has improved with the unification of exchange rates.