The central bank of Egypt is likely to raise interest rates next week and the North African country may need another IMF-funded program to tackle challenges caused by the conflict in Ukraine, according to Fitch Ratings.
The rating agency, in its report released on Wednesday, said that Egyptian authorities have an option to strengthen the country’s external situation by raising interest rates and depreciating the currency, among other options.
The vast majority of Egypt’s wheat is imported from Russia and Ukraine, which enables the government to provide bread subsidies to millions. The escalating price of grain as a result of the war is putting pressure on the government’s finances.
According to Fitch, the war in Ukraine will impact Egypt’s tourism sector recovery as about a third of all visitors are Russian and Ukrainian. In addition to remittances and monies received from the Suez Canal, tourism is Egypt’s primary source of hard currency.
A higher interest rate and food price inflation could impede efforts to reduce the general government deficit, according to Fitch. However, some financing assistance might be forthcoming from Egypt’s Gulf partners.
Egyptian interest rates would rise for the first time since 2017. The monetary policy committee will meet on March 24.
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