Egypt's economic gamble is finally yielding positive results, as the country's inflation rate for February dropped by almost half, from 24% in January to 12.8%. This significant decrease marks the lowest inflation level in the North African country since 2022, when it began to slide into an economic recession.
The drop in inflation is attributed to a year-long foreign currency shortfall subsiding, which had fueled an underground market for dollars and led to high prices for consumers. According to the statistics office in Egypt, the country's inflation rate grew by an annual 12.8% in February, compared to 24% in January.
This positive trend is expected to continue, with most experts forecasting that the inflation rate will reduce further throughout the year. The ease of inflationary pressures now allows Egypt's central bank greater latitude to formally begin a long-awaited monetary-easing cycle at its next policy meeting on April 17.
Last year, officials allowed the country's currency (Egyptian pound) to fall 40% against the dollar and raised interest rates to a record high in March to ensure outside finance. This policy, made possible by a significant investment from the United Arab Emirates, enabled the country to more than double its International Monetary Fund loan program as part of a massive global rescue totaling $57 billion.
The UAE's $35 billion investment in Egypt's economy, which includes a $24 billion acquisition of investment rights in Egypt's Ras El-Hekma project and a $11 billion direct investment in the economy, has played a crucial role in stabilizing the country's economy. The Ras El-Hekma project is a next-generation tourism city with a free zone and an investment zone that combine residential, commercial, and recreational areas.
The Abu Dhabi wealth fund ADQ was set to pay $24 billion for the Ras El-Hekma development rights, while Egypt will keep a 35% stake. The remaining $11 billion was made available by the ADQ, which will come from UAE funds deposited at Egypt's Central Bank.
The impact of this economic turnaround is already being felt, with food and beverage prices, the largest single component of the inflation basket, climbing just 3.7% in February compared to 20.8% in January. On a monthly basis, consumer prices increased 1.4% versus 1.5%.
As Egypt's economy continues to recover, the country's central bank is expected to take a more accommodative stance, which could lead to further economic growth and stability. This development is a significant step forward for Egypt, which has been working to revamp its economy and attract foreign investment.
In conclusion, Egypt's economic gamble is finally paying off, with the country's inflation rate dropping to its lowest level since 2022. This positive trend is expected to continue, driven by a subsiding foreign currency shortfall and significant investment from the UAE. As the country's economy continues to recover, Egypt is poised to become a more attractive destination for foreign investment and a key player in the regional economy.