Egypt’s Answer to a Rising Dollar Puts Everyday Items Out of Reach

Shortages of medicine, clothing and food are gripping Egypt, as the country emerges as one of the most vulnerable to shocks felt across the world by the rising value of the U.S. dollar and disruptions caused by the war in Ukraine. The main reason: Economists say the government is throwing up obstacles to imports in a bid to hoard its dwindling foreign-currency reserves.

Egypt needs U.S. dollars to repay about $158 billion in foreign debt in the coming years, to buy desperately needed grain on international markets and prop up its sagging currency, the Egyptian pound. Some goods are sitting in Egyptian ports because of new hurdles preventing importers from accessing U.S. dollars. Egyptian banks have also made it harder for customers to withdraw dollars.

The stronger dollar is pushing up food, gas and medicine prices around the world, causing import delays and shortages in developing countries in Africa, Asia and Latin America. In nearby Tunisia, the government is struggling to pay for imports of sugar, milk and cooking oil. Such subsidized food items have disappeared from store shelves and Tunisians now wait in long lines at petrol stations for fuel.

In Egypt, the slowdown in imports has extended to a wealthier class that has suddenly found itself unable to find upscale goods like European kitchen appliances, French cheese and American cars.

Peter Farag, a salesman at a

Bosch

home appliance store in Cairo, said he has lost much of his middle-class clientele as supplies of stainless steel gas stoves, fridges and freezers have dwindled.

The difficulty extends to Egyptian staples like bread and pasta. Egypt’s massive grain industry is getting hit especially hard, with most private-sector mills unable to get dollars to buy wheat that has risen in price by 20% in the past month, said Kareem Abou Ghaly, a board member of the Federation of Egyptian Industries’ cereals chamber.

“It’s not sustainable,” he said. The chamber has demanded faster access to currency, and the mills are expecting the government to provide some of its stock, but are still waiting for broader action from the central bank. Much of a $500 million loan from the World Bank in June will go toward helping Egypt import wheat, according to the government.

The Egyptian currency has hit a record low against the dollar and sunk 20% since the beginning of the year, and is one of the worst-performing currencies in the world this year. The weak pound has exacerbated inflation of 15%, Egypt’s fastest year-over-year rate in nearly four years.

The WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, has risen 17% this year, driven by rising American interest rates and the sense of stability the U.S. provides during a period of global economic uncertainty. 

Economists say Egypt’s central bank has used foreign reserves to try to prop up the pound but has struggled to stem its losses. The central bank says its primary task is targeting inflation. The bank didn’t respond to requests for comment.

Foreign investors are losing confidence in the economy. In the Egyptian bond market, a key barometer of international sentiment, foreign investors sold 179.2 billion Egyptian pounds, equivalent to $9.1 billion, on net during the first seven months of the year, according to central-bank data.

The International Monetary Fund could throw Egypt a lifeline. Since March, authorities have been negotiating with the IMF for a new loan, even though Egypt is already the international creditor’s largest client after Argentina, having obtained a total of $20 billion in loans since 2016. If talks succeed, it would be the fourth loan for Egypt and likely come with higher interest rates, as well as more stringent conditions that include less intervention to prop up the pound.

An agreement could come within weeks, IMF officials say. Analysts estimate a loan in the ballpark of $6 billion.

Saudi Arabia, Qatar and the United Arab Emirates have pledged about $22 billion in central bank deposits and investments. Their contributions, analysts say, are aimed at helping Egypt avert an economic crisis and ensuring the continuation of President

Abdel Fattah Al Sisi’s

regime.

Despite such support, Egypt’s foreign exchange reserves have fallen, to $33 billion in August, according to the latest figures, from nearly $41 billion in February.

Mr. Sisi has used debt and Egypt’s newfound natural-gas riches to underwrite a construction spree that is remaking the country, building a new capital city and boosting the government’s annual growth figure to 6.6%. But some economists say Egypt entered a recession this year, with the private sector slumping and more people falling into poverty. The import issue is further dampening business confidence and hurting consumer spending.

Ramy Mohamed, 32, who owns a renovations company, says his projects have dropped by nearly half since import restrictions started in March. He can’t restock on showers, sink mixers and toilets from Italy, so many of his clients have chosen to put off renovations.

For items he is able to get, Mr. Mohamed pays four times as much. “We eat out once a week instead of the entire weekend,” he said of his family. “I try to drive less.”

Egypt’s import problem started in March, when authorities rolled out a series of bureaucratic measures, including requiring companies to pay for any shipments up front. It also required them to secure letters of credit from banks.

Import restrictions combined with incentives and subsidies for specific industries can help boost a country’s local production. Many economists, however, say Egypt has failed to roll out an effective strategy for the latter.

The central bank fine-tuned its rules in September, allowing importers to tap some sources of foreign currency.

“It creates a bit of breathing room but isn’t a significant departure from efforts to throttle imports,” says Timothy E. Kaldas, an Egypt research fellow at the Tahrir Institute for Middle East Policy. Authorities continue to give priority to protecting foreign-currency reserves, he says.

—Amira El-Fekki contributed to this article.

Write to Chao Deng at [email protected]

Shortages of medicine, clothing and food are gripping Egypt, as the country emerges as one of the most vulnerable to shocks felt across the world by the rising value of the U.S. dollar and disruptions caused by the war in Ukraine. The main reason: Economists say the government is throwing up obstacles to imports in a bid to hoard its dwindling foreign-currency reserves.

Egypt needs U.S. dollars to repay about $158 billion in foreign debt in the coming years, to buy desperately needed grain on international markets and prop up its sagging currency, the Egyptian pound. Some goods are sitting in Egyptian ports because of new hurdles preventing importers from accessing U.S. dollars. Egyptian banks have also made it harder for customers to withdraw dollars.

The stronger dollar is pushing up food, gas and medicine prices around the world, causing import delays and shortages in developing countries in Africa, Asia and Latin America. In nearby Tunisia, the government is struggling to pay for imports of sugar, milk and cooking oil. Such subsidized food items have disappeared from store shelves and Tunisians now wait in long lines at petrol stations for fuel.

In Egypt, the slowdown in imports has extended to a wealthier class that has suddenly found itself unable to find upscale goods like European kitchen appliances, French cheese and American cars.

Peter Farag, a salesman at a

Bosch

home appliance store in Cairo, said he has lost much of his middle-class clientele as supplies of stainless steel gas stoves, fridges and freezers have dwindled.

The difficulty extends to Egyptian staples like bread and pasta. Egypt’s massive grain industry is getting hit especially hard, with most private-sector mills unable to get dollars to buy wheat that has risen in price by 20% in the past month, said Kareem Abou Ghaly, a board member of the Federation of Egyptian Industries’ cereals chamber.

“It’s not sustainable,” he said. The chamber has demanded faster access to currency, and the mills are expecting the government to provide some of its stock, but are still waiting for broader action from the central bank. Much of a $500 million loan from the World Bank in June will go toward helping Egypt import wheat, according to the government.

The Egyptian currency has hit a record low against the dollar and sunk 20% since the beginning of the year, and is one of the worst-performing currencies in the world this year. The weak pound has exacerbated inflation of 15%, Egypt’s fastest year-over-year rate in nearly four years.

The WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, has risen 17% this year, driven by rising American interest rates and the sense of stability the U.S. provides during a period of global economic uncertainty. 

Economists say Egypt’s central bank has used foreign reserves to try to prop up the pound but has struggled to stem its losses. The central bank says its primary task is targeting inflation. The bank didn’t respond to requests for comment.

Foreign investors are losing confidence in the economy. In the Egyptian bond market, a key barometer of international sentiment, foreign investors sold 179.2 billion Egyptian pounds, equivalent to $9.1 billion, on net during the first seven months of the year, according to central-bank data.

The International Monetary Fund could throw Egypt a lifeline. Since March, authorities have been negotiating with the IMF for a new loan, even though Egypt is already the international creditor’s largest client after Argentina, having obtained a total of $20 billion in loans since 2016. If talks succeed, it would be the fourth loan for Egypt and likely come with higher interest rates, as well as more stringent conditions that include less intervention to prop up the pound.

An agreement could come within weeks, IMF officials say. Analysts estimate a loan in the ballpark of $6 billion.

Saudi Arabia, Qatar and the United Arab Emirates have pledged about $22 billion in central bank deposits and investments. Their contributions, analysts say, are aimed at helping Egypt avert an economic crisis and ensuring the continuation of President

Abdel Fattah Al Sisi’s

regime.

Despite such support, Egypt’s foreign exchange reserves have fallen, to $33 billion in August, according to the latest figures, from nearly $41 billion in February.

Mr. Sisi has used debt and Egypt’s newfound natural-gas riches to underwrite a construction spree that is remaking the country, building a new capital city and boosting the government’s annual growth figure to 6.6%. But some economists say Egypt entered a recession this year, with the private sector slumping and more people falling into poverty. The import issue is further dampening business confidence and hurting consumer spending.

Ramy Mohamed, 32, who owns a renovations company, says his projects have dropped by nearly half since import restrictions started in March. He can’t restock on showers, sink mixers and toilets from Italy, so many of his clients have chosen to put off renovations.

For items he is able to get, Mr. Mohamed pays four times as much. “We eat out once a week instead of the entire weekend,” he said of his family. “I try to drive less.”

Egypt’s import problem started in March, when authorities rolled out a series of bureaucratic measures, including requiring companies to pay for any shipments up front. It also required them to secure letters of credit from banks.

Import restrictions combined with incentives and subsidies for specific industries can help boost a country’s local production. Many economists, however, say Egypt has failed to roll out an effective strategy for the latter.

The central bank fine-tuned its rules in September, allowing importers to tap some sources of foreign currency.

“It creates a bit of breathing room but isn’t a significant departure from efforts to throttle imports,” says Timothy E. Kaldas, an Egypt research fellow at the Tahrir Institute for Middle East Policy. Authorities continue to give priority to protecting foreign-currency reserves, he says.

—Amira El-Fekki contributed to this article.

Write to Chao Deng at [email protected]