The Egyptian pound depreciated to a third of its 2011 value of LE5.8 to the US dollar after its floatation in 2016. It steadied at around LE18 to the dollar from 2016 to May 2019. The devaluation caused a steep hike in prices and resulted in inflation rates rocketing from an average of 10 per cent to a whopping 33 per cent. As a result, the Central Bank of Egypt (CBE) had to raise interest rates by a total of seven per cent to curb the inflationary measures, reaching interest rates of 20 per cent in certain incidences.
Today, however, there is a completely different picture. Signs of economic recovery are evident, and it looks as though the austerity measures that the government has had to introduce, including fuel and energy subsidy cuts and the introduction of a value-added tax (VAT), are beginning to pay off thanks to the resilience and clear vision of those in charge and most of all the endurance of Egyptian citizens.
After the recent round of fuel subsidy cuts that ranged from 16 to 30 per cent, it was predicted that a hike in inflation rates would follow each cut. The usual ripple effect of the cuts would reach goods and commodities countrywide and be mirrored in a rise in inflation, it was thought, with monthly inflation rates accelerating to 10 to 14 per cent in July and August.
Inflation is one indication of the state of a country’s economy and refers to the increase or decrease in the prices of goods and services, usually measured in terms of an annual percentage. As inflation increases, purchasing power decreases, and as it decreases, purchasing power increases.
However, in this case Egypt’s inflation rates did not rise despite the subsidy cuts. In fact, the main driver for rising prices, food products, provided their lowest readings in nearly four years. Defying all expectations, the inflation rate in August 2019 fell to 7.5 per cent from 13 per cent in August 2018, while annual consumer price inflation recorded 6.7 per cent in August 2019 compared to 13.6 per cent in August 2018.
This is momentous and very telling, confirming the upward trend of the Egyptian economy. Other statistics corroborate this view. In June, the CBE cut its interest rates, and as a result of the drop in the inflation rate, a further one to 1.5 per cent cut in interest rates is expected, the most significant reductions since the floatation of the pound. Lower interest rates lure investors while lowering the domestic debt. As rates fall, it becomes cheaper to borrow, and borrowers pass their profits onto consumers.
In December 2016, the pound reached an all-time high of LE19.80 against the dollar. In September 2019, the pound was trading at LE16.30, its highest level in several years, boosted by lower inflation rates, an increase in foreign funds and a stable economic forecast.
In 2017, Egypt’s unemployment rate decreased to 11.2 per cent, an accomplishment in itself. It had reached 13.4 per cent in 2013. The difference in the figures may not sound like much, but it translates to over two million new jobs. These have been created in various sectors in governorates across Egypt, utilising and enhancing existing industries and know-how.
Then, in the first quarter of 2019 Egypt’s unemployment rate fell even further to a phenomenal 8.1 per cent compared to 10.6 per cent in the same quarter of 2018 and the lowest in 20 years. The unemployment rate for 2020 is predicted to stand at 7.3 per cent.
In the fourth quarter of 2019, growth in Egypt’s GDP reached 5.7 per cent, slightly higher than the 5.6 per cent growth achieved in the previous quarter. The government is targeting a six per cent growth rate in 2019/2020, according to the finance minister, while experts from FocusEconomics, a provider of international economic analysis, expect Egypt’s GDP to expand by 5.5 per cent in 2020 and 5.5 per cent again in 2021.
More importantly, GDP is growing faster than debt, and the country has a budget surplus of LE36 billion, which according to the Middle East Observer means that “we can overcome the bleeding of debt accumulation” as the ratio of net public debt to GDP falls.
In 2013, Egypt’s foreign currency reserves had reached a low of $13 billion. Today, no shortage of hard currency exists, with the CBE announcing at the end of April that the country’s foreign currency reserves stood at $44.218 billion.
Writing in the US magazine Foreign Policy, Egyptian economist Ahmed Shams Al-Din says, quoting figures from the International Monetary Fund (IMF) and the Ministry of Finance, that Egypt according to the IMF “has cut its current account deficit from more than five per cent of GDP to less than 2.5 per cent, from sustainable income sources (excluding grants), and nearly halved its budget deficit from 16.5 per cent in 2013 to 8.5 per cent of GDP in five years, while growing by 5.5 per cent (up from the anaemic 2.2 per cent growth in 2013. By every definition of the phrase, this is a strong economic recovery.”
FocusEconomics has confirmed the above statistics. “The [Egyptian] economy should grow at a strong, albeit slightly weaker, pace in FY 2020, as it reaps the rewards of the government’s market-friendly reforms and is supported by upbeat government investment spending and lower interest rates,” it said.
Egypt is over the economic hump, paving the way for a better future for all its citizens.
The writer is a political analyst.
*A version of this article appears in print in the 19 September, 2019 edition of Al-Ahram Weekly.