Pressure on Egyptian imports hampers economy as dollars run out
- New rules have slowed imports amid pressure on the currency
- The bottleneck contributed to strong price increases
- Bankers say dollars are scarce in the interbank market
CAIRO, Sept 27 (Reuters) – Christeen Aiad, from east Cairo, was hoping to buy a small automatic car this year, but rules preventing importers from exchanging scarce dollars have paid for that and she has to move to bike instead.
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Unfortunately for those planning purchases like Aiad, new import rules introduced earlier this year to stem dwindling foreign exchange reserves and bolster the pound have led to shortages of goods, sending inflation soaring near four-fourth highs. year.
“Even used cars have become out of reach,” said Aiad, 38, after the price of the car she wanted jumped 75% since she started looking last year, reflecting higher prices for some other imported goods. “I lost hope and decided to live without a car.”
The automotive sector has been one of the hardest hit, but the import crisis has affected everything from electrical components to textiles and spare parts, traders said.
This week, the central bank, where the governor was abruptly replaced in August, eased restrictions slightly by allowing companies to use foreign currency deposits or transfers to secure letters of credit to pay for imports, according to new regulations widely reported in local media. The central bank did not respond to a request for comment.
But the import bottleneck is expected to persist.
Annual imports of finished vehicles to Egypt, previously worth around $8 billion, are expected to fall by more than half this year, a senior industry executive said. Prices of popular used cars have doubled and some traders are hoarding them in expectation of further increases, according to two used car dealers in Cairo.
“There is a buying frenzy due to people’s fears about what might happen later,” said a third used-car dealer in the Egyptian capital, Hany Ahmed. “Some are buying cars as a store of value in light of local currency devaluation.”
THE DOLLARS DISAPPEAR
In April-June, imports of durable consumer goods fell 57% from the same quarter a year earlier, according to the most recent quarterly figures from the national statistics agency.
Over the summer, some clothing retailers unable to secure new seasonal stock left winter collections on the shelves.
Bankers say dollars have largely disappeared from the interbank market, and traders say that for most people securing hard currency through a letter of credit so they can import goods has become a time-consuming and frustrating task.
Net foreign assets in the banking system fell to the equivalent of negative 369 billion Egyptian pounds ($19 billion) in July, from positive 248 billion in July 2021, as the central bank reduced them to support the value of the currency against the dollar, according to central bank data.
Foreign currency reserves slipped to $33 billion in July from $41 billion in January despite an influx of cash from Egypt’s Gulf allies and new import rules.
US Federal Reserve rate hikes that began in March have complicated Egypt’s efforts to attract local and foreign borrowing to fill current account and budget deficits.
With mounting debt, Egypt has been negotiating a new loan with the International Monetary Fund since March to help shore up its economy. Read more
Meanwhile, the Egyptian pound has lost more than 22% of its value against the dollar since March.
RETURN TO PORTS
Exemptions were granted for essential goods and industrial inputs ahead of the relaxation of the central bank’s latest import rule, but officers are still struggling to pay letters of credit needed to secure cargo release and diplomats say some exporters to Egypt have become wary.
A Commerce Department spokesperson declined to comment on the reported difficulties.
“There are stocks of goods piled up at customs,” said Ahmed Shiha of the importers division at the Cairo Chamber of Commerce. “Some shipments could be stuck (in ports) for three or four months.”
The construction sector, which has helped keep Egypt’s economy growing during the COVID-19 pandemic, has been hit by the delays, developers said.
“I cannot say that there are projects that have stopped, because the real estate sector uses a lot of locally produced materials. But there may be projects that have delayed openings by two months for example, so that the people can bring in their imports,” said Mohamed Hany el-Assal, CEO of Misr Italia Properties.
Even some items that many would consider essential have been affected. A Cairo pharmacy owner said Egyptian drug suppliers were struggling to import foreign-made drugs, while local manufacturers had cut production due to difficulties in importing active ingredients.
Officials say reserves of strategic commodities, including wheat, have been maintained.
“There is definitely a backlog (for food products) at the ports,” said Ashraf el-Gazayerly, a senior official with the food chamber of the Federation of Egyptian Industries. “Stocks are dwindling but there is no shortage.”
($1 = 19.4600 Egyptian pounds)
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Additional reporting by Mariam Rizk, Patrick Werr, Aidan Lewis and Nafisa Eltahir; Writing by Aidan Lewis; Editing by Elaine Hardcastle
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