EGYPT – Egypt has deferred payments for its large wheat purchases, a move aimed to relieve financial pressures as the country grapples with a shortage of foreign currency, raising concerns among traders as Reuters reports.
According to traders, delayed payments for state-purchased wheat, a top priority commodity, were unprecedented as they were stretching to months.
Aly Moselhy, Supply and Internal Trade Minister acknowledged the delays, blaming it on a shortage of foreign currency that was worsened by the economic fallout from the war in Ukraine and has led to a general slowdown in imports.
“We don’t want to add pressure on the central bank. Hence we are phasing with the suppliers and so we have to thank the suppliers very, very, very much for their understanding,” Moselhy said.
Luckily, Moselhy intimated that despite deferred payment, cargoes have been shipped and unloaded without interruption so far adding that Egypt’s state wheat reserves used to make subsidized bread have not been affected.
Egypt has one of the highest per capita consumption of wheat in the world. At 180kg, the country’s per capita is almost thrice the global average.
However, with such a huge appetite, Egypt is forced to rely on imports as local wheat production, despite being the highest in Africa is unable to meet the local demand.
The country buys about five million tonnes of wheat annually, mainly from Russia and Ukraine for its subsidized bread, a politically sensitive benefit available to tens of millions of people.
The recent crisis between Russia and Ukraine, however, adversely disrupted purchases, but the government later managed to boost its reserves, mainly relying on Russian wheat imports through the Black Sea Corridor.
However, suppliers and traders lament that banks working with the General Authority for Supply Commodities (GASC) have delayed opening 180-day letters of credit—letters sent by banks guaranteeing timely payment for the supplying party, fulfilled by banks and repaid to them by buyers—for weeks and sometimes months.
According to traders, Egyptian state-owned banks, including Banque Misr, have only opened these letters weeks or months after shipment adding that some were still awaiting payment for a shipment made early this year.
Moselhy, defending the state, said that the Ukraine war delivered a broad shock to Egypt’s economy, causing investors to pull out billions of dollars leading to Egypt’s currency tumble and inflation soaring.
Worse still, the finance ministry says funding for subsidies on food, mostly bread, will rise 41.9% to 127.7 billion Egyptian pounds ($4.1 billion) in the fiscal year from July 2023 to June 2024.