Egypt’s real GDP growth is forecasted to drop to 2 percent in 2020, down from 5.6 percent in 2019, the International Monetary Fund (IMF) projected as the impact of the coronavirus pandemic continues to weigh heavily on emerging markets, yet the country’s economy could still grow to 2.8 percent in 2021.
According to the IMF’s Economic Outlook Report, the IMF projected that consumer prices, which set the inflation rate, will record 5.9 percent over 2020, and up to 8.2 percent in 2021.
The current account balance, according the report, is forecasted to decelerate by 4.3 percent in 2020, and by 4.5 percent in 2021, in comparison with a decline of 3.6 percent in 2019.
The unemployment rate is projected to hit 10.3 percent in 2020, up from 8.6 percent in 2019, and is expected to go up to 11.6 percent in 2021, the IMF said.
The downward projections come one day after Egypt’s Finance Minister Mohamed Maait announced that the FY 2020/21 draft budget lowers Egypt’s economic growth rate to 4.5 percent, down from 6.4 percent, on the back of the virus outbreak.
The draft budget for the upcoming fiscal year set its estimations based on a price of $61 for oil crude per barrel to maintain the budget against the likely harsh impacts caused by the virus outbreak, keeping an eye on the global updates regarding the reduction of the global oil production.
He added that the FY2020/21 budget also supports economic activity, human development and structural reform to contain the harsh economic impacts of the pandemic in the long term.
On 11 March, Minister of Planning and Economic Development Hala El-Said said that the targets of Egypt’s development plan for fiscal year (FY) 2020/2021 include attaining high, sustainable economic growth of 5.8 percent, and a GDP growth of 12.5 percent.
El-Said's comments came during a meeting with Prime Minister Mostafa Madbouly to discuss the three-year plan of FY2020/2021 for sustainable development (2018/2019 and 2021/2022).
El-Said said the expected economic growth rate was concluded despite the current indices that projected a slowdown in global economic growth, which had already witnessed a slowdown of 3.2 percent in 2017, 3 percent in 2018 and 2.6 percent in 2019.
The World Bank projected a greater downward trend in 2020, estimated at 2.5 percent.
The pandemic has forced all countries to impose isolation, lockdowns, and widespread closures to slow its spread to keep human health safe, but it is having a severe impact on economic activity, according to the IMF outlook.
Emerging markets and developing countries’ economies are expected to fall by 9.6 percent over 2020; however, they are projected to grow by 11 percent in 2021, according to IMF estimations.
Emerging markets and developing countries’ economies are expected to retreat, on an annual basis, by 1 percent Y-o-Y in 2020, and to grow by 6.6 percent Y-o-Y in 2021.
As a result, the report projected the global economy to contract sharply by 3 percent in 2020, much worse than during the 2008/09 financial crisis.
“In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support,” according the report.
Meanwhile, according the report, necessary measures to reduce contagion and protect lives will take a short-term loss on economic activity, but, in the meantime, it is an important investment in long-term human and economic health.
Dealing with the expected harsh impacts on the global economy, policymakers will need to carry out crucial targeted fiscal, monetary, and financial market measures to support affected households and businesses for the sake of maintaining economic relationships throughout the shutdown and enabling activity to gradually normalise once the pandemic fades and containment measures are lifted, according the report.
A number of emerging market and developing economies have begun providing or announcing significant fiscal support to heavily impacted sectors and workers.
The report also highlighted that the significant actions of large central banks in recent weeks include monetary stimulus and liquidity facilities to reduce systemic stress, which have supported confidence and contribute to limiting the amplification of the shock, thus ensuring that the economy is better placed to recover.
“The synchronised actions can magnify their impact on individual economies and will also help generate the space for emerging market and developing economies to use monetary policy to respond to domestic cyclical conditions. Supervisors should also encourage banks to renegotiate loans to distressed households and firms while maintaining a transparent assessment of credit risk,” the report said.
It also stressed that strong multilateral cooperation is fundamental to overcoming COVID-19’s impacts, including helping financially constrained countries facing twin health and funding shocks, and for channelling aid to countries with weak healthcare systems.
Moreover, countries urgently need to work together to slow the spread of the virus and to develop a vaccine and therapies to counter the disease.
“Until such medical interventions become available, no country is safe from the pandemic (including a recurrence after the initial wave subsides) as long as transmission occurs elsewhere,” the report said.