On the other hand, agreements for the sale of certain public assets held by public and sovereign parties have been halted, given the difficulties related to the valuation of assets and other factors surrounding the agreements for sale, which have led the International Monetary Fund to suspend and postpone its first review of the program, which was scheduled for March Until June, the government faces a tight schedule to meet key International Monetary Fund requirements and execute transactions worth $2 billion before the end of June 2023.
The pound exchange rate
The report pointed out that the stability of the exchange rate of the Egyptian pound prevented inflation from rising to high rates, but the import controls related to this situation again led to the accumulation of goods in Egyptian ports and affected the growth.
Recent developments indicate that the devaluation of the Egyptian pound will only occur again in conjunction with strong promises to supply dollar products, or an acceleration in the sale of assets, which will help to strengthen reserves.
Economic growth
With these pressures building up, the National Bank of Kuwait estimates that economic growth will slow in the coming quarters, although it will remain somewhat elevated at between 3 and 4 percent, and stay away from recession, and The economy is expected to rebound in FY 2024-2025 on the back of the Egyptian pound’s improved competitiveness, lower interest rates and lower inflation.
The report said the pace of economic growth slowed in the second quarter of fiscal year 2022-2023 (October-December) to 3.9% on an annual basis, compared to 4.4% in the previous quarter and 8.3% in the second quarter of fiscal year 2021-22, with Economic activity came under severe pressure, due to shortages of key goods and services, accelerating inflation and rising borrowing costs .
These factors led to a decline in consumer purchasing power, and therefore a decline in private consumption rates, as well as a decline in commercial investment.
Year-to-date (January-April), the PMI has averaged 46.6, down slightly from 46.8 in October-December 2022.
It included readings of around 44 for some sub-components such as current production and new orders, although employment rates remained better.
As a result, the National Bank of Kuwait expects the pace of growth to be slightly lower, compared to the second half of FY2022-2023, in the range of 3-3.5%, as this period includes a 19% fall in the pound in January, and an increase in the parallel market exchange rate to unprecedented levels against the dollar, high inflation rates at average levels of 31% (January- April), a tightening of monetary policy at a tighter pace, with interest rates increasing by 5 percent in the December-March period.
Looking to the 2023-2024 financial year, the National Bank of Kuwait expects growth to remain under pressure given the slowdown in reforms and the possibility that the authorities maintain pressure on imports and withdraw from reserves to defend the currency and gain time.
However, there are huge opportunities to be seized to change major policies, after the elections scheduled for 2024.
The measures to be implemented, according to the IMF agreement, are the transition to a permanently flexible exchange rate system, the sale of public and parapublic assets and the tax reforms necessary to control the growing deficit.
labor market
As for the labor market, the report confirmed a marginal improvement in the unemployment rate to 7.1% in the third quarter of the financial year 2022-2023, against 7.2% in the second quarter of the same year, to record the rates lowest unemployment. Never.
The marginal drop in unemployment in the third quarter of the year is attributed to an increase in employment of about 241,000 jobs and a decrease in the unemployment rate of 14,000, bringing the total labor force to a net rate of 227,000.
The National Bank of Kuwait expects the unemployment rate to rise steadily in the fourth quarter of FY 2022-23, given the impact of the slowing pace of economic growth on the labor market.
In addition, fiscal consolidation in the coming quarters, which would lead to lower public investment in major projects, could affect employment rates.
Balance of payments
The report points out that recently released results point to a significant improvement in the balance of payments, with the current account deficit narrowing to just $1.7 billion in the first half of fiscal year 2022-23 from 7.8 billion. billion in the first half of fiscal year 2022-23. financial year 2021-2022.
This was due to a contraction of 12% in non-oil imports, to $37 billion, and a strong recovery in tourism receipts, of 26%, to $7.3 billion.
Of note, workers’ remittances were down 20% year-on-year to $11.9 billion from $15.5 billion.
The National Bank of Kuwait expects the deficit to narrow in the 2022-2023 financial year to $6-7 billion (about 2.1% of GDP), compared to previous expectations of $11 billion. dollars.
These positive external developments will contribute to reducing Egypt’s external financing needs, if they continue until FY 2023-2024.
However, regardless of the current account deficit, large external debt maturities amounting to $16 billion remain one of the biggest challenges facing the Egyptian economy next year.
Due to the suspension of privatization agreements and its impact on the delay in collecting new foreign exchange revenues, we expect reserves to decline throughout the year.
Furthermore, although weakness in the Egyptian pound is still expected and could occur on a large scale, it now seems logical that the currency will not undergo a severe correction until there are clearer guarantees regarding the implementation of the privatization program, and therefore the payment of the proceeds in US dollars.
inflation
As for the inflation rate, the “NBK” confirmed that it had jumped since the beginning of the year due to the impact of the shortage of goods and the devaluation of the Egyptian pound in January.
Inflation averaged 30.8% on an annual basis during the period between January and March, against 18.8% during the period between October and December, reaching its highest level recorded in 6 years, reaching 32.7% in March 2023.
However, inflation eased slightly in April to 30.5%, supported by the stability of the exchange rate, as the currency did not experience more moves or cut subsidies. From this perspective, we expect inflation data over the next few months to be highly dependent on government action. .
For example, the National Bank of Kuwait expects inflation to be between 29 and 31 percent in the coming months, assuming there are no major policy changes. However, if the authorities decide to renew their commitment to a flexible exchange rate, inflation could rise later this year.
In response to high inflation rates in the previous quarter, the Central Bank of Egypt raised interest rates by 200 basis points on March 30, bringing the discount rate to 18.75% from 8 .75% the previous year.
So far, local currency Treasury yields have risen 200 basis points since January, to 22.5% for one-year bonds.
However, as inflation rates began to decline, the Central Bank kept the interest rate unchanged at its May 18 meeting.
Read the Latest World News Today on The Eastern Herald.
