Egypt is witnessing a scarcity of dollars, which has affected the exchange rate of the pound (Al Jazeera)

Non-oil private sector activity in Egypt continued to contract last January for the 38th month in a row, as demand continued to be affected by inflationary pressures and the war on Gaza, according to a survey today.

The Standard & Poor's Global Purchasing Managers' Index in Egypt fell to 48.1 points from 48.5 last December, remaining below the 50 level that separates growth from contraction.

Production contraction

Standard & Poor's Global said, "The continued decline coincided with a significant contraction in production and new orders during last January, amid indications that rising prices are still weakening customer demand."

Data from the Central Agency for Public Mobilization and Statistics in Egypt indicated a decline in consumer price inflation in Egyptian cities to 33.7% on an annual basis last December from 34.6% in the previous November, and a historic rise to 38% last September. .

Standard & Poor's economist David Owen said, "Some companies indicated that the conflict between Israel and Gaza and the geopolitical tension associated with it negatively affected tourism activity, which in turn leads to further difficulties for non-oil economic activity during the next few months."

The sub-index for new orders fell to 46.4 from 46.9 last December, while the production sub-index fell to 46.6 from 46.7.

The business confidence sub-index fell to 52.1 from 55.1 last December, but it is still higher than last November’s reading of 50.9, which was its lowest level since the introduction of this index in 2012.

Earlier, Fitch Ratings said that the broader repercussions of the conflict in the Gaza Strip increase the risks facing neighboring countries, especially Egypt.

At the time, the agency expressed its belief that foreign partners might be willing to increase support for Egypt in response to the repercussions associated with the conflict, and expected that its International Monetary Fund program would be expanded.

Fund agreement

Egypt and the International Monetary Fund agreed on the main policy elements of the economic reform program, according to a statement issued last Friday, in a new indication that the final agreement to increase the country’s $3 billion loan is nearing completion.

The head of the International Monetary Fund mission to Egypt, Ivana Vladkova-Hollar, said that the two sides had achieved “excellent progress” in discussions on a comprehensive policy package that could begin long-awaited reviews of the country’s economic reform program.

She added, "To this end, the IMF team and the Egyptian authorities agreed on the main policy elements of the program. The authorities expressed their strong commitment to moving quickly on all important aspects of Egypt's economic reform program."

Egypt held talks for two weeks with the IMF to revive and expand the loan agreement, which was signed in December 2022.

The Fund suspended the disbursement of loan shares last year after Egypt fixed the exchange rate of the pound against the dollar last March and did not fulfill its pledge to allow market forces to determine its exchange rate.

The exchange rate has been fixed at 30.85 pounds to the dollar since then, while the dollar is trading on the black market at just above 50 pounds.

Hollar said that discussions will continue virtually "to determine the amount of additional support needed to help fill Egypt's growing financing gaps from the International Monetary Fund and other bilateral and multilateral development partners in the context of the most recent shocks."

Source: Al Jazeera + Reuters