Russia’s invasion of Ukraine is putting pressure on Egypt’s economy, raising concerns about popular discontent in the Middle East’s most populous country.
The Egyptian pound fell more than 11% on Monday, while the country’s central bank raised key interest rates by a whopping 100 basis points in a surprise meeting, the first rate increase since 2017. Analysts expect the bank to raise interest rates at the scheduled meeting. For Thursday.
In a statement, the central bank said it was responding to “global inflationary pressures” with supply chain disruptions and rising commodity prices. Annual headline inflation in Egypt hit 8.8% in February, according to the central bank.
“These pressures have increased with the recent Russia-Ukraine conflict,” the bank said.
Egypt is the world’s largest wheat importer, particularly vulnerable to the shock of the war in Ukraine. Tens of thousands of Egyptians rely on subsidized bread, with Egypt receiving 85% of its wheat from Ukraine and Russia.
Last week the Egyptian government imposed new price restrictions on non-subsidized bread. The government on Monday set prices ranging from half a pound to a pound per loaf depending on the type of bread.
The price of bread is a major political issue in Egypt. Food inflation is seen as one of the broader conditions that led to the 2011 uprising that ousted former President Hosni Mubarak.
Egypt’s vast economy has grown in recent years, but the living standards of most of Egypt’s 100 million people have plummeted as a result of the government’s austerity measures in conjunction with the IMF loan program launched in 2016.
Foreign investors have withdrawn from Egypt since Russia launched its invasion of Ukraine last month, fearing how the war could affect the Egyptian economy. Egypt is also facing a loss of revenue from Russian and Ukrainian tourists, the main source of foreign exchange.
The Egyptian pound has been relatively stable for many years, according to economists and bankers, due to the intervention of Egyptian state-owned commercial banks. The government does not approve of interventions.
“People’s income does not correspond to decent living, but we do our best to improve it [economic] The situation, “President Abdel Fattah al-Sisi said in a televised statement on Sunday evening, stressing that Egypt did not face any shortage of basic commodities or wheat.
The central bank has decided to raise the overnight deposit rate, overnight lending rate and core transaction rate by 100 basis points to 9.25%, 10.25% and 9.75% respectively.
The invasion has disrupted grain exports from Ukraine via the Black Sea, raising doubts about the country’s ability to harvest the next crop.
Egypt is by no means an African country that relies heavily on Russian and Ukrainian food. According to the UN, Somalia and Benin each rely entirely on wheat imports from 2018 to 2020. Despite other wheat sources, world prices have risen since the invasion.