The International Monetary Fund published the report on Egypt's request for financing worth $ 5.2 billion over the course of a year on August 13th, in order to improve its outlook on the Egyptian economy and raise its expectations for growth rates during the next fiscal year compared to its previous estimates issued in June. The following is a review of this report.
An overview of the Egyptian economy before the Covid-19 epidemic:
Before the spread of the Corona epidemic, the world viewed Egypt as one of the fastest growing emerging markets, as it achieved macroeconomic stability after implementing the economic reform program in 2016, which contributed to addressing structural imbalances at the financial and monetary levels, which resulted in raising growth rates and reducing public debt levels in a dramatic way. Notably, the authorities have also remained committed to pushing forward structural reforms to provide more inclusive job opportunities, led by the private sector and pursuing policies aimed at reducing poverty and inequality. This is evidenced by the following:
The Egyptian economy achieved a growth rate of 5.6% during the first half of the 2019-2020 fiscal year, on an annual basis.
Record a primary fiscal surplus of 2% of GDP.
Cash reserve reached $ 45 billion by the end of February.
The core inflation rate is stable at 1.9% year-on-year.
The following chart can be used to illustrate the most important factors driving economic growth in Egypt from 2004/05 until 2018/2019.
Figure 1: Distribution of contribution to GDP growth
It is evident from the previous drawing that in the fiscal year 2004-2005, private consumption was the largest factor affecting real GDP growth as the real driver of economic growth. 2019, which confirms that the policies to encourage the private sector have paid off, which has led to an increase in the contribution of private sector investments to GDP growth.
As for the rate of inflation, we find that it has recorded a remarkable decline during the past few years, especially the prices of foodstuffs, which are a key component of the consumer price index, which is evident from the following figure:
Figure 2: Consumer Price Index
It can be inferred from the previous figure that the consumer price index witnessed a remarkable decline during the past four years after it recorded its highest levels during the period between 2017 and 2018 after the Egyptian government decided to float the pound, only to retreat to levels lower than it recorded before the float thanks to the stability of the local currency and conditions Economic in general.
Regarding the components of the index, it is evident from the previous drawing that food prices have declined since 2017 to record a negative level by early this year, which means reducing the burden imposed on Egyptians who spend a significant part of their income on food, and retail trade prices have also decreased during the same period. This further undermines the ability of traders to raise prices.
Based on the strength of the Egyptian economy, the International Monetary Fund approved $ 5.2 billion in financing over the course of a year as part of a "credit preparedness" package with the aim of supporting small business management and maintaining the authorities' efforts with regard to the macroeconomic achievements made over the past four years, while strengthening governance. And transparency, and reduce barriers to competition.
The Egyptian economy can overcome the repercussions of Corona:
Egypt has taken many precautionary measures aimed at limiting the spread of the disease throughout the country in parallel with the tendency of most countries of the world to implement such measures, the most important of which was to impose restrictions on travel, aviation and international trade.
Last March, the government decided to allocate 100 billion pounds (about 1.8% of the gross domestic product) to support the health sector and enhance the financial and monetary situation. The Central Bank of Egypt also lowered the interest rate by 300 basis points to 9.25% to support economic activity, while taking many initiatives to support borrowers. Moreover, the authorities have also strengthened medical examination capabilities and allocated 8 billion pounds to support health care, including the provision of medical supplies and the disbursement of rewards to workers in hospitals and quarantine laboratories.
In addition, the Egyptian government has implemented several containment measures to facilitate social distancing and slow the spread of the virus by imposing curfews, suspending air travel, closing schools and places of worship, reducing working hours for banks and stock exchanges, while encouraging public and private sector employees to work from home, and has also established quarantine hospitals. Health, and suspended the export of personal protective equipment in order to ensure its availability to citizens, and based on the government's awareness of the impact of the epidemic on irregular employment (daily employment), 500 pounds per month for a period of three months were allocated to workers in this sector in order to alleviate the repercussions of the epidemic on their standard of living.
The economic impact of these measures was directly evident through the sudden halt in tourism revenues, which represent 12% of GDP and account for 10% of employment, and remittances from workers abroad, which represent 8.2% of GDP, also declined, and revenues from the Canal could also decrease. Suez With the continued restrictions and restrictions imposed on trade and travel, and in addition, Egypt witnessed the exit of more than $ 15 billion of foreign investment in domestic debt instruments during March and April, a reflection of the decline in the risk appetite of investors.
Despite this, all international institutions such as "Fitch" and "Standard & Poor's" confirmed the sovereign credit rating of Egypt with fixing the outlook for the Egyptian economy at "stable", with the support of stabilizing conditions and the gradual reopening of economic sectors. On May 21, Egypt decided to return to the international bond market, thus being one of the first countries to take this step, as it raised $ 5 billion in tranches of 4, 12 and 30 years, which reflects investor confidence in the Egyptian economic prospects.
Based on the foregoing, the IMF expects that the rate of GDP growth in Egypt will reach 2% during the current fiscal year 2020-2021, to resume by the next year 2021-2022 at 6.5% - compared to its forecast issued in June, which indicated a growth rate of Only 2% during the same period - with the support of the world beginning to restore its equilibrium after the strong shock it received during the current year due to the economic repercussions of the emerging "Corona" virus pandemic, and the Fund also expected the level of external debt to decline to 21.8% of GDP during the next fiscal year .
Comparison between the IMF forecasts before and after the Corona crisis:
It is evident from the previous table that the Corona virus has cast a shadow over a number of economic indicators - even if the picture is not as bleak as the case of some other countries - for example, the International Monetary Fund expected a rise in the current account deficit during the current fiscal year to 16.2 billion dollars compared to 10.6 billion $ In the fund's forecasts before the virus spreads, while the fund predicted a strong decline in tourism revenues to $ 2.7 billion compared to $ 17.8 billion in previous estimates, as well as a decline in net foreign direct investment flows by nearly half to $ 5.5 billion during 2020-2021.
In conclusion, it can be said that the Egyptian measures aimed at curbing the spread of the Corona virus have won the praises of all international organizations, which was evident in the recent reports issued by the Egyptian economy, which confirmed its ability to overcome the repercussions of the epidemic and achieve high growth rates in the coming years.