CAIRO: A severe dollar shortage caused by the Russia-Ukraine war has forced Egypt to impose a restriction on imports, particularly of non-essential items such as clothes, cars, appliances, car tires and luxury food, which has wreaked havoc on retail trade . and industrial sectors. Higher global energy, food and shipping costs following Russia’s invasion of Ukraine in late February have added to Egypt’s already huge import bill of about $80 billion a year.
Higher U.S. interest rates have made it more expensive to service Egypt’s $83 billion foreign debt and made the country’s bond and treasury bill issues less attractive to foreign investors. An estimated $20 billion of foreign investment has been pulled from the local debt market this year due to uncertainty over emerging markets.
The war has also halted the flow of Russian and Ukrainian visitors – who normally account for about 30 percent of total foreign arrivals – just as the tourism industry was beginning to recover from a downturn caused by the coronavirus pandemic. Egypt’s foreign reserves, a psychologically important indicator, fell from about $40 billion at the end of 2021 to $33.14 billion in July, according to reports.
The government responded by devaluing the currency by 14 percent in March, banning the export of essential food products and opening negotiations with the IMF to reach an agreement on new structural reforms and a possible loan from the Washington lender. The overall result was a steep rise in prices, pushing the inflation rate to nearly 14 percent in July, the latest month for which official figures are available. There are growing expectations that there will be another devaluation of the currency, which would push prices even further.
Rising prices have forced the government to introduce costly measures to ease the burden on the poor and middle class. Last month, the government said it would allow holders of state-issued ration cards to buy more subsidized items. It also pledged to keep the price of subsidized bread, a staple for Egypt’s 103 million people, unchanged despite paying more for wheat imports, which total about 12 million tons annually.
On Wednesday, the government announced a package of measures to clear backlogs of cargo at the country’s ports, but some industrialists and businessmen are skeptical that it will be enough to repair the damage caused by import restrictions.
Import restrictions and the devaluation of the currency had a domino effect, with some businessmen taking advantage of the lack of new supplies to raise prices above the levels needed to offset the depreciation of the pound. “My supplier is charging me three times what I paid for the materials before the devaluation,” said an industrialist whose factory produces sports supplements. “I’ve raised my prices 15 percent and I’m not even breaking even. If I collect more, my sales will go down.”
In a move that underscored the severity of the problem, the government in August dimmed the lights in Cairo’s Tahrir Square and ordered shops and malls to turn off air conditioning to reduce electricity use and free up some of the natural gas used by power plants for export. to earn more currency. – The agents