Arab Republic of Egypt (ARE) is located in the north-east Africa and partially in Asia (Sinai). It shares borders with Israel, Palestine (Gaza Strip) to the east, Sudan to the south and Libya to the west. In the north Egypt borders the Mediterranean Sea and the Red Sea in the east. The Suez Canal (length 173 km) spread through the territory of Egypt is the shortest sea route from the Mediterranean to the Red Sea and to the Indian Ocean. Therefore the Suez Canal is an essential strategic object towards Egyptian economic prosperity. Egyptian territory is actually inhabited only by 7.7%, the rest of the territory is the desert. Egypt's population currently stands at 86.3 million and continues to grow. Although the country is reach on natural resources and has a huge potential nowadays it faces pliantly of economic difficulties. "From just before 2011 to today: GDP growth is down (from nearly 6 percent to under 2 percent); unemployment is up (from 9 percent to over 13 percent); foreign exchange reserves are down (from $35 billion to just under $15 billion); the budget deficit has more than doubled (from nearly $110 billion to over $230 billion); a quarter of that budget are subsidies to poor and middle class; and the poor and near-poor total approximately half of the population" (Powerandpolicy.com).
Unemployment remains the major problem of Egyptian economics. Statistics states that "Over a quarter of the Egyptian population (26.3 percent) lives under the poverty line of 2 dollars a day, with another quarter hovering just above the line. General unemployment in Egypt currently stands at 13.4 percent; nearly 70 percent of the unemployed are between 15 and 29 years, and over 80 percent are educated." (Carnegie Endowment for International Peace). As a result the youth us forced to find a work with a higher salary level by means of salary in the envelops enlarging the shade economy sector.
If the population is suffocating from stagflation it is a problem especially when the population is young, hungry and unemployed. Nearly two-thirds of Egyptians are people younger than 30 and tis number amounts to 79 million people. Egypt's population of about 40% lives on less than $ 2 a day. The Egyptian government announced that the inflation rate is now about 12%. However, people obviously do not believe that and it is quite understandable (Princeton.edu). However, they believe that the unemployment rate in the country has reached double digits.
Rising inflation is a crucial issue in the Egyptian economy nowadays. Egyptian economy has been suffering since 2011 when Hosni Mubarak was deposed. As a result of political turmoil tourists and foreign investors are now hesitating weather to return to Egypt because the finances of the country and its foreign reserves are in a very disturbed position. The highest level of inflation for the last four years was reached in November 2013, and then began to decline until the government increased fuel prices in July this year. This step once again led to an increase in inflation over the past two months. Annual core inflation the calculation of which does not take the state-subsidized goods and the prices of goods with variable costs such as fruits and vegetables into account fell to 9.15% in September compared to 10.07% in August according to the Central Bank of Egypt (Cbe.org.eg).
“All economic indicators have suggested rates should change,” said Ashraf Sharqawi, chairman of Egyptian Financial Supervisory Authority ('Central Bank Reduces Its Interest Rates By 50 Basis Points'). Monetary policy is the governmental instrument of inflation regulation. "Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity." (The Economic Times). In order to lower the inflation Egyptian Government bases its monetary policy on the following principles:
1. Go to the active monetary policy which involves increasing the participation of the National Bank in the interbank money market, a significant growth of the volume of refinancing primarily under the financing of investment projects.
2. Provide maximum approximation to forecast exchange rate benchmarks and actively apply intervention to neutralize his speculative fluctuations.
3. Regulatory consumers' spending, introducing differentiated rates of redundancy depending on the structure of the loan portfolio, informing the borrower about the real price of the loan.
4. Introduce the purpose of encouraging savings and new deposit instruments with interest rates tied to the actual inflation index.
5. To strengthen the control over the level of "problematic" loans, banks' adherence to financial stability indicators.
Moreover, leading countries are also ready to provide a helping hand to Egypt in order to stabilize the payment balance. "HSBC, National Bank of Egypt and National Bank of Abu Dhabi will arrange a $1.5 billion syndicated loan to Egypt's state oil company in order for the country to pay back foreign energy companies, a statement from the three banks said on Friday." (Egyptindependent.com). Therefore Egyptian economy is has a huge potential and needs effective implementation of governmental instructions to improve its current position.
Carnegie Endowment for International Peace,. 'Economic Challenges Facing Egypt’S Next President'. N.p., 2014. Web. 29 Nov. 2014.
Cbe.org.eg,. 'Welcome To Central Bank Of Egypt -'. N.p., 2014. Web. 29 Nov. 2014.
Central Bank Reduces Its Interest Rates By 50 Basis Points'. Daily News Egypt (2013): par. 4. Web. 29 Nov. 2014.
Egyptindependent.com,. 'Banks To Arrange $1.5 Bln Loan For Egypt To Repay Foreign Energy Firms | Egypt Independent'. N.p., 2014. Web. 29 Nov. 2014.
Powerandpolicy.com,. 'Forget The Coup: Egypt’S Economy Is The Real Problem | Power & Policy'. N.p., 2014. Web. 29 Nov. 2014.
Princeton.edu,. 'Economy Of Egypt'. N.p., 2014. Web. 29 Nov. 2014.
The Economic Times,. 'Monetary Policy Definition | Monetary Policy Meaning - The Economic Times'. N.p., 2014. Web. 29 Nov. 2014.