The International Monetary Fund on Tuesday released its global economic outlook for 2020-2021 amid the IMF and World Bank spring meetings that kicked off on 14 April.
The report expects Egypt’s real GDP growth to drop to 2 percent in 2020, down from 5.6 percent in 2019, but it is expected to rise to 2.8 percent in 2021.
It also projected that consumer prices, which set the inflation rate, will record 5.9 percent over 2020 and to up to 8.2 percent in 2021.
The current account balance, according the report, is expected to drop by 4.3 percent in 2020, and by 4.5 percent in 2021, while it declined by 3.6 percent in 2019.
Experts’ views diverged on the expectations for developing economies and emerging markets, including Egypt.
Economic expert and former consultant at the United Nations Industrial Development Organization (UNIDO) Sherif Delawar said that international institutions’ estimations in crisis times are likely to be incorrect, citing the 2008 global financial crisis.
Speaking to Ahram Online, Delawar said that the current coronavirus pandemic’s impacts cannot be measured at present, as the overall picture of global economic performance and global macroeconomic indices is not yet clear.
Delawar said that, despite the harsh impacts of the COVID-19 outbreak on Egypt, not all of the country’s economic sectors have been significantly affected.
The tourism sector, some businesses, and the Suez Canal are the top sectors which are affected by the current situation, but other sectors such as manufacturing, agriculture, and oil and gas are less affected, as all factories that were working before the COVID-19 outbreak still working to meet the domestic market’s needs, especially in terms of food and medical products.
For the oil and gas sector, Delawar said that the lowering of oil prices by around 50 percent recently has saved the public budget about 50 percent of its oil bill. In addition, Egypt’s production of agricultural crops, especially wheat, is promising, as they cover 60 percent of Egypt’s domestic needs for wheat, for instance.
He added that the key challenge that Egypt will likely face due to the current crisis is that its foreign reserves could be further affected.
Reserves already dropped $5.5 billion in March, according to Central Bank of Egypt (CBE) data.
“Egypt’s foreign reserves must be kept. All public, governmental, and private institutions have to set out plans over the long-term to preserve these reserves. The CBE also has to introduce incentives for Egyptian expats, to encourage them to transfer their remittances to Egypt’s banking system, to enhance the current reserves,” Delawar said.
Foreign reserves are the only hope for Egypt’s economy to keep the gains from its economic reform programme and to face the impacts of the global recession caused by the COVID-19 outbreak, he argued.
He also stressed that the export sector must play a role in preserving the Egyptian economy, especially exports of food commodities and crops, which could raise Egypt’s foreign reserves.
On the other hand, Passant Fahmy, an economic expert and a member of parliament’s economic affairs committee, said that the pandemic is a significant opportunity for Egypt’s government to adjust its approach to the economy and business management.
Fahmy told Ahram Online that Egypt can avoid the disappointing economic expectations the IMF’s report gave through focusing on developing the agriculture sector, preserving its foreign reserves and working on increasing them.
She added that Egypt has to adopt crowding finance, which is an economic style based on the economy of communion that allows foreign investors to invest in state-owned assets in various economic sectors through a POT system, while the state retains the ownership right for those assets. Fahmy said this must be adopted in tourism, agriculture and fishing, by which hard currency can be generated to back Egypt’s foreign reserves.
Fahmy also warned that if Egypt’s foreign reserves drop further, the exchange rate will likely deteriorate, and that will significantly affect the stability of Egypt’s fiscal position.