Egypt’s central bank increased its lending to the government in the last fiscal year, despite a drop in inflation from its peak in September, according to the bank’s latest annual budget report.
Economists warn that such lending could harm the economy by expanding the money supply, which may fuel inflation and weaken the exchange rate against foreign currencies.
The “M1” money supply, which includes domestic currency in circulation and demand deposits in Egyptian pounds, grew by 31.1% by the end of June 2024, following increases of 33.4% and 23.1% in the previous two fiscal years.
This rapid money supply growth occurred amid Egypt’s economic challenges, exposed by shocks like the COVID-19 pandemic and the war in Ukraine, despite a decline in headline inflation from 38.0% in September to 25.7% in July.
The central bank’s budget revealed a rise in government securities holdings to 1.36 trillion Egyptian pounds by June’s end, as Egypt committed to reducing such lending under an $8 billion IMF agreement, though it missed targets due to delayed UAE funds.
