Egypt’s economy took turn for the worse in recent months

Despite the inauguration of projects, such as the Suez Canal Area Development Project and huge investment pledges, the economic situation in Egypt has taken a turn for the worse in recent months, according to a Focus Economics report published Tuesday.

The “precarious” security and political situation has grown, causing monetary problems. Slow implementation of new projects and structural reforms will restrict Egypt’s economic growth, the report read.

The Egyptian economy is suffering imbalance as a result of the deteriorating security situation, which is anticipated to disrupt the growth of the country. Data showed a slump in the industrial production, the non-oil sector, and the revenues of the Suez Canal, according to the report.

“Moreover, the important tourism sector is at risk of collapse following a series of terrorist incidents attributed to the Islamic State (ISIL) in the Sinai Peninsula,” the report said. The shaky tourism sector and the weakening confidence of foreign investors in the market will widen the foreign reserves shortage and cripple the government spending on mega projects.

Egypt had already been struggling with a severe shortage of foreign currency reserves prior to these developments, and pressure will likely build going forward, the report stated.

Foreign reserves registered $16.423bn in November and $16.415bn in October, according to the Central Bank of Egypt (CBE) figures.

“A lack of reserves is making it harder for the Central Bank to defend the pound, although the Bank had allowed the pound to depreciate three different times between February and October amid concerns over the impact of rising inflation,” the report read.

Focus Economics analysts expect the inflation to average 10.5% in 2015 and predict it to decrease to 9.6% in 2016. Inflation increased from 9.2% in September to 9.7% in October amid higher food prices.