Egypt’s economy is in a downward spiral. The country is struggling to manage its debt, which is now at over 95% of GDP. 

The Egyptian pound has also lost significant value against the US dollar, making it difficult for people to afford basic goods. Within the business community, people fear Egypt is heading towards hyperinflation and instability.

On Thursday, Moody’s downgraded Egypt’s credit rating by one notch to ‘Caa1’ from ‘B3’, citing the country’s worsening debt affordability. 

This downgrade puts Egypt’s credit rating in junk territory, meaning investors see it at a higher risk of defaulting on its debt.

However, Moody’s also placed Egypt’s outlook as “stable”. The agency expects Egypt’s credit rating to remain at ‘Caa1’ for 12-18 months.

“Moody’s expects the materialization of asset sale proceeds at the central bank to help restore the economy’s foreign currency liquidity buffer,” the credit rating agency said.

The agency also said that it expects Egypt to continue to receive financial support from the International Monetary Fund under its $3 billion arrangement.

According to official data, Egypt’s headline annual inflation rate kept its upturn in July 2023 to hit a new record, jumping to 38.2 percent, up from 14.6 percent recorded in the same month of 2022. 

Inflation is expected to average 32.3 percent in 2023, after 5.2% and 5% in 2021 and 2020, respectively.

Egypt has imposed import restrictions to conserve foreign currency and suspended the use of Egyptian pound debit cards outside the country.

Two Egyptian banks, Arab African International Bank and Arab International Bank, have suspended using Egyptian pound debit cards outside the country to stop the outflow of foreign currency as the country’s currency shortage worsens.

The USD/EGP rate jumped from EGP 18.56 in March 2022 to EGP 30.9 by March 2023, which remains until today. This is far below the black market rate, where a dollar sells for around 40 or 41 pounds. 

Many debit card holders used their cards to make large purchases, often in the UAE, of gold, mobile phones, and other products to take advantage of the Egyptian pound’s low official exchange rate.

“Sometimes they just send the cards (without leaving Egypt), and they buy things with them. You find there are four or five people from the same family,” a banker told Reuters.

Meanwhile, the Egyptian government has been selling state assets as it pushes for privatization amid a continuing economic crisis.  In February, 32 state-owned companies were put up for sale, and the government announced that $1.9bn worth of state assets had been sold.

It is considered crucial for Egypt to overcome its hard currency shortage and an important condition tied to the IMF loan.