Egypt’s foreign currency reserves have at last surpassed levels seen before its 2011 uprising, but importers and analysts say growing dollar liquidity also reflects an uncomfortable reality: consumers battered by austerity are unable to buy.
Egypt said on Tuesday that reserves surged by $4.7 billion in July to reach $36.04 billion, higher even than levels on the eve of the uprising that overthrew Hosni Mubarak.
The political turmoil drove away tourists and foreign investors and kicked off a currency shortage the country has been trying to overcome ever since.
Dollar liquidity has been on the upswing since Egypt signed a $12 billion three-year International Monetary Fund loan agreement in November. The loan deal is tied to economic reforms such as floating its pound currency, a move that halved its value and made exports competitive but which has pushed
inflation to over 30 percent.
Those higher prices and IMF-backed subsidy cuts and tax hikes have hit consumer spending. Egyptian companies, many of which rely heavily on imports that have become more expensive, have found they cannot pass those additional costs on to customers whose purchasing power has been dramatically reduced.
“As long as purchasing power remains weak people won’t have the appetite to import and sell locally,” said Allen Sandeep, head of research at Naeem Brokerage.
Six importers who spoke to Reuters said their businesses have been crushed because the exchange rate makes their goods too costly for struggling Egyptians. The pound traded at about 17.8 pounds to the dollar on Thursday.
“Demand for dollars is lower, and both people and factories are taking lower quantities (of goods) ... we are at least 25 percent down in terms of tonnage compared to last year,” said a large food importer who preferred to remain anonymous.
Sales of passenger cars, a sector dependent almost entirely on imports, dropped 44 percent in June compared with a year before, according to an industry analysis by Egypt’s Automotive Marketing Informational Council.
“Our imports would have been double if it wasn’t for these problems,” said Ahmed Anis Ezz Eldin, owner of a car part importing company.
But weaker demand for imports has helped narrow a once gaping trade deficit, which fell in the first half of 2017 by 46 percent year-on-year on the back of a sharp $10 billion decline in imports.
Importers say that decline is also fueled by interest rates that have climbed too high to justify financing their businesses after the central bank hiked key rates by 7 percentage points to combat inflation since the currency float.
“At 22 percent (interest rates) there is nothing that makes money,” said the food importer.
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