Economy

Egypt’s Inflation Hits Record Highs, Posing Economic Challenges

Record-breaking inflation in Egypt raises concerns over price stability and economic growth

Published

3 months ago

July 10, 2023

Consumer prices in Egypt have surged at an unprecedented rate, reflecting mounting pressures on food costs following the Muslim feast holiday and increased summer spending.

In June, urban areas of the country witnessed a significant acceleration in inflation as annualised rate rose to 35.7%, up from 32.7% recorded in the previous month.

This staggering increase represents the highest inflation rate recorded since December 2009, according to figures released on Monday by the state-run CAPMAS statistics agency.

The sharp upswing in inflation was primarily driven by a 65.9% rise in food and beverage costs, which is the largest component of the inflation basket.

Also, the statistical effect of a low base from the previous year further contributed to the overall inflation rate. On a monthly basis, inflation slightly eased to 2.1% in June, down from 2.7% in May.

The current surge in inflation in Egypt surpasses the peak witnessed in the aftermath of the currency crisis in 2016, underscoring the challenges faced by the government as it strives to revitalize an economy still reeling from the aftershocks of Russia’s invasion of Ukraine.

In its efforts to secure a $3 billion deal with the International Monetary Fund, Egypt devalued its currency three times since March 2022 but has maintained stability since the last devaluation in January. Although these initial moves helped drive up the cost of imported goods, they hampered the government’s attempts to reduce spending while grappling with one of the country’s most severe foreign-currency crises in years.

Recently, Egypt increased the prices of certain subsidized commodities like rice and sugar while President Abdel-Fattah El-Sisi warned that the nation cannot bear further cost increases, a statement widely interpreted as downplaying expectations of another devaluation in the near future.

Inflation has been a prominent concern for the central bank, even as the Monetary Policy Committee opted to keep interest rates unchanged last month, despite them being significantly lower than the inflation rate. The central bank’s target is to achieve a price growth rate of 7%, with a margin of plus or minus 2 percentage points, by the fourth quarter of next year.

Economists suggest that authorities are diligently working to accumulate sufficient foreign currency reserves before implementing another devaluation and transitioning to a market-determined exchange rate, as pledged. Central bank Governor Hassan Abdalla previously indicated that higher interest rates might have limited impact in curbing price growth, as the main drivers were supply-related issues.

The Monetary Policy Committee is scheduled to convene again on August 3.

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

August 2023 Witnesses Highest Revenue Allocation of the Year – N1.1 Trillion Shared

The driving force behind this boost in revenue can be attributed to foreign exchange gains that have contributed significantly to the government’s income stream.

Published

1 day ago

September 30, 2023

Temitayo Olukoya

The Federation Account Allocation Committee (FAAC) unveiled its allocation of N1.1 trillion to the three tiers of government for the month of August 2023, Investors King reports.

This substantial increase was detailed in a communiqué following the committee’s latest meeting. August allocation was the highest so far with an increase of N133.99 billion when compared to the N966.11 billion shared in July 2023.

The driving force behind this boost in revenue can be attributed to foreign exchange gains that have contributed significantly to the government’s income stream.

Breaking down the N1.1 trillion total distributable revenue, the statement reveals that it consists of distributable statutory revenue amounting to N357.4 billion, distributable Value Added Tax revenue totaling N321.94 billion, Electronic Money Transfer Levy revenue at N14.10 billion, Exchange Difference revenue of N229.57 billion, and an augmentation of NN177.09 billion.

Of this impressive sum, the Federal Government is set to receive N431.25 billion, while the State governments will be allocated N361.19 billion, and the local government Councils will obtain N266.54 billion.

However, it’s essential to note that the total revenue available for August stood at N1.48 trillion, marking a 14% or 0.26 trillion decrease from the preceding month’s figure of N1.74 trillion.

The FAAC communiqué further underscores that various deductions were made, including N58.76 billion for the cost of collection, N254.05 billion for total transfers and refunds, and N71 billion allocated to savings. Additionally, the Excess Crude Account maintained a balance of $473,754.57.

The statement elaborated, “Gross statutory revenue of N891.934 billion was received for the month of August 2023. This was lower than the N1,150.424 billion received in July 2023 by N258.490 billion. The gross revenue available from the Value Added Tax was N345.727 billion. This was higher than the N298.789 billion available in July 2023 by N46.938 billion.”

Economy

Zambia’s Finance Minister Faces Dual Challenge in Upcoming Budget Address

Published

2 days ago

September 29, 2023

Samed Olukoya

As Zambia’s Finance Minister, Situmbeko Musokotwane, prepares to present the nation’s budget, he finds himself at a pivotal crossroads.

The second-largest copper producer in Africa is grappling with two pressing concerns: debt sustainability and soaring living costs.

Debt Restructuring Dilemma: Musokotwane’s foremost challenge is finalizing the $6.3 billion debt-restructuring deal with official creditors, led by China and France.

Delays have hindered disbursements from the International Monetary Fund (IMF) and left private creditors in limbo.

To reassure investors, a memorandum of understanding with the official creditor committee is urgently needed.

President Hakainde Hichilema emphasizes the importance of sealing these transactions to signal closure on this tumultuous chapter.

Plummeting Tax Revenue: The key copper-mining industry, which accounts for 70% of Zambia’s export earnings, is in turmoil.

First-half mining company taxes and mineral royalty collections have nosedived, adding to economic woes.

This, in turn, has depreciated the local currency, exacerbating imported inflation, particularly in fuel prices.

Rising Food Inflation: Musokotwane faces mounting political pressure to combat soaring living costs, with annual inflation reaching an 18-month high of 12%. Corn meal prices, a staple in Zambia, have surged by a staggering 67% in the past year.

Neighboring countries’ demand for corn has led to smuggling and further price spikes, raising concerns about food security.

Currency Woes: The kwacha’s value has been a barometer for the nation’s economic health. It depreciated by 16% since June 22, the worst performance among African currencies, reflecting the ongoing debt-restructuring uncertainty.

In his budget address, Musokotwane faces the daunting task of striking a balance between debt management, economic stability, and alleviating the burden on Zambia’s citizens.

The international community will keenly watch to see if his fiscal measures can steer the nation toward a path of recovery and prosperity.

Economy

IMF Urges Sub-Saharan African Nations to Eliminate Tax Exemptions for Fiscal Health

Published

3 days ago

September 28, 2023

Samed Olukoya

Sub-Saharan African countries have been advised by the International Monetary Fund (IMF) to tackle their fiscal deficits by focusing on eliminating tax exemptions and bolstering domestic revenue rather than resorting to fiscal expenditure cuts, which could hamper economic growth.

The IMF conveyed this recommendation in a paper titled ‘How to avoid a debt crisis in Sub-Saharan Africa.’

The IMF’s paper emphasizes that Sub-Saharan African nations should reconsider their overreliance on expenditure cuts as a primary means of reducing fiscal deficits. Instead, they should place greater emphasis on revenue-generating measures such as eliminating tax exemptions and modernizing tax filing and payment systems.

According to the IMF, mobilizing domestic revenue is a more growth-friendly approach, particularly in countries with low initial tax levels.

The paper highlights success stories in The Gambia, Rwanda, Senegal, and Uganda, where substantial revenue increases were achieved through a combination of revenue administration and tax policy reforms.

The IMF also pointed out that enhancing the participation of women in the labor force could significantly boost Gross Domestic Product (GDP) in developing countries.

The IMF estimates that raising the rate of female labor force participation by 5.9 percentage points, which aligns with the average reduction in the participation gap observed in the top 5% of countries during 2014-19, could potentially increase GDP by approximately 8% in emerging and developing economies.

In a world grappling with the weakest medium-term growth outlook in over three decades, bridging the gender gap in labor force participation emerges as a vital reform that policymakers can implement to stimulate economic revival.