– Egypt’s central bank increased its lending to the government in the last fiscal year, despite a decline in inflation from a record high in September.

– The “M1” money supply, which includes currency in circulation and demand deposits, grew by 31.1% in the year ending June 2024, amid ongoing economic challenges.

– Egypt pledged to reduce central bank lending and borrowing by other government agencies under an IMF agreement, but missed initial targets due to delays in foreign investment funds.

Lending by Egypt’s central bank to the government continued to rise in the last fiscal year, according to the bank’s annual budget, despite inflation decreasing from a record high in September. Economists warn that this lending could harm the economy by expanding the money supply, fueling inflation, and weakening the exchange rate.

The central bank reported a 31.1% increase in the “M1” money supply, which includes domestic currency in circulation and demand deposits, for the year ending June 2024. This followed growth of 33.4% in the previous year and 23.1% in the fiscal year 2021/22. The increase in money supply occurred during a period of economic challenges in Egypt, exacerbated by the COVID-19 pandemic and the war in Ukraine. However, headline inflation fell from 38.0% in September to 25.7% in July.

James Swanston of Capital Economics noted that the growth in M1 money supply has slowed since its February peak of nearly 50%, potentially contributing to the decrease in inflation, particularly in food prices, over the course of the year, Reuters reported.

By the end of June, the central bank had 1.36 trillion Egyptian pounds in outstanding securities purchased from the finance ministry, up from 1.09 trillion a year earlier. This included 940.3 billion pounds in local currency bonds, up from 818.9 billion pounds in June 2023.

In a March agreement with the International Monetary Fund (IMF), Egypt pledged to reduce central bank lending to the government, but it missed targets in April and May due to delays in funds from the UAE’s $35 billion purchase of Mediterranean coastal property development rights. The IMF reported this in a July review. Additionally, Egypt committed to halting central bank loans to other government agencies, which decreased to 766.8 billion pounds by the end of June, down from 887.6 billion pounds the previous year.

Egypt also pledged to reduce borrowing by other government agencies by 150 billion pounds by the end of June and by 100 billion pounds annually until it reaches zero.

Government spending has surged in recent years as Egypt has pursued ambitious infrastructure projects, including new cities and extensive road expansions, while maintaining some subsidies to support declining living standards.