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The Egyptian Prime Minister explains the impact of the Russo-Ukrainian war on the economy

The Egyptian prime minister on Sunday gave a detailed and chilling overview of the challenges his country’s economy is facing as it is rocked by the aftermath of the Russia-Ukraine war.

In a televised press conference, Mustafa Madbouli tried to reassure Egyptians that his cabinet was doing everything in its power to weather the crisis, but did not shy away from sharing the extent of the country’s economic woes.

He spoke of a significantly higher import bill, the escape of 20 billion dollars in “hot [foreign] money” and a halt to tourist arrivals from the two warring nations, who typically account for a third of all visitors to Egypt. Significantly, he also listed a number of budgetary targets that Egypt hoped to achieve.

“It is a crisis that comes on top of another crisis,” Mr Madbouli said, referring to the economic problems caused by the coronavirus pandemic, which Egypt was recovering from when war broke out in February.

“There is uncertainty and no one can say what will happen tomorrow.”

Egypt, the most populous Arab country with 103 million people, responded quickly to the aftermath of the war by devaluing its currency by 14 percent against the US dollar, banning exports of essential food and passing a costly stimulus package to shore up the economy.

In March, Egypt began negotiations with the IMF for technical assistance and possible financing to help it weather the crisis. Mr Madbouli said Sunday that Egypt and the IMF are expected to reach an agreement within a month.

The aftermath of the war has compounded the impact of the global supply chain disruption caused by the pandemic, he said.

President Abdel Fattah El Sisi, the architect and driving force behind Egypt’s ambitious economic reform, has described the consequences of the Russo-Ukrainian war as “unprecedented”.

In a series of TV commentaries since March, Mr El Sisi has provided details of the war’s impact on Egypt and how it intends to handle it, including stimulus to strengthen the stock market and increase the private sector’s share of investment.

Mr Madbouli gave more details on the crisis on Sunday, even acknowledging some of the more serious challenges, such as sovereign debt growth.

He said Egypt, the world’s largest wheat importer, is currently buying the product on world markets at $435 a ton, up from $270 before the war. Russia and Ukraine accounted for the bulk of Egypt’s wheat imports – totaling around 13 million tonnes last year – forcing the country to seek alternative sources.

FILE PHOTO: A worker weighs dough to be baked into bread at a bakery in Cairo, January 8, 2015. REUTERS /Mohamed Abd El Ghany/File Photo

More than 70 million Egyptians rely on cheap bread provided by the state under a subsidy card scheme for low- and middle-income Egyptians. Bread, a staple for most Egyptians, is a politically sensitive food in a country where nearly half the population lives below or above the poverty line.

The government has left the price of subsidized bread unchanged despite the rise in wheat prices and has moved to control the price of open market bread after it rose by 50 percent immediately after the Russian invasion. It has also offered financial incentives to local wheat farmers to ensure they supply nearly six million tons to the state during the current harvest season.

Mr Madbouli said Egypt plans to spend £130 billion ($700 million) to cushion the direct effects of the war in the fiscal year beginning July 1; and a further £335 billion to offset its indirect impact.

He said the private sector will account for 65 percent of all investment in the country within three years, up from about 30 percent now. He said the government aims to reduce total debt to 75 percent of gross domestic product from the current 86 percent and the budget deficit to 5 percent from 6.2 percent over the next four years

Egypt aims to achieve a primary surplus of around 1.5 percent of GDP in the current fiscal year, which will increase to 2 percent in the next four years, he said.

“Thank God Egypt has been able to deal with the global crises of the past three years,” Mr Madbouli said. “We would have seen total collapse in many areas if we hadn’t started economic reforms.”

Updated May 15, 2022 3:46 pm

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