Government’s reliance on central bank funding will further reduce low living standards
Egypt’s depreciating exchange rate, together with increasing central bank financing of the government, is likely to lift inflation in Egypt above already relatively high levels, according to US ratings agency Standard & Poor’s.
“Strong inflation growth through an erosion of real incomes would reduce the already low standard of living for the majority of the population. It is also likely to add to the existing high levels of political discontent. This may further reduce the government’s willingness to implement measures to alleviate fiscal and external pressures,” said credit analyst Trevor Cullinan in a report published in May.
Since the uprising of 2011, economic growth in Egypt has been weak and the Central Bank of Egypt (CBE) has seen a sharp drop in its foreign exchange
reserves. Domestic banks continue to be the main investor in government securities, but the government is increasingly resorting to greater financing from the CBE.
This month, S&P also lowered Egypt’s credit rating to CCC+/C from B-/B.
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