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Egypt Continues To Experience Elevated Inflation

James Boston
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Egypt Continues To Experience Elevated Inflation

Following the temporary lull in June and July it is now clear that there is no signs of abatement in Egypt’s elevated inflation rate. This morning’s data highlights a rise from 11.04% to 11.49% for the month of August, although very much on the high side the rate of price growth is now back to five year average levels after peaking at over 23% in 2008.

Interest rates are 9.25%, which leaves little scope for monetary cooling in an economy that is on the borderline of financial crises. Technically Egypt is not in recession, nor has it been for the past 3 years, but the very low levels of GDP growth experienced during this period are doing little to inspire confidence in an economy that is running a 10% budget deficit in the face of a 94% debt/GDP burden.

The military backed government has been accused of neglecting the economy and this is leading to a growing movement of civilian protest and demonstrations against the deterioration in the standard of living are becoming more prevalent. This has prompted a reaction from the Government that has recently pledged to restore confidence in Egypt’s economy. Finance Minister, Hany Kadry Dimian, earlier this week expressed his belief that the Egyptian economy is on the verge of a take off. The minister set a public deficit target of 8% over the coming three years which would imply a level of austerity that may not be welcomed by the population.

Broadening the tax base is one policy that is sure to be implemented but in reality the Egyptian economic problem is unlikely to be dealt with in the short term. A restoration of confidence in the economy will prompt an increase in investment but this will take time to bear fruit. In the meantime Egypt will find it difficult to fund it’s struggling health and education sectors, the latter of which was recently ranked in last place out of 146 nations in a World Economic Forum survey.

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