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Wednesday, 23 October 2019

Egypt's economy has significantly improved since 2013

Gihan Saleh, Saturday 8 Jun 2019
EGP
File Photo: An employee counts money at an exchange office in downtown Cairo (Photo: Reuters)
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Egypt’s economic reform programme, launched in 2016, was a much-needed and brave endeavour, developed by a home-grown economic team, approved by political leadership, and endorsed by internationally acclaimed institutions such as the IMF.

The programme aimed at a significant turnaround in Egypt’s main economic key performance indicators, with the ultimate objective of elevating the quality of life based on solid and permanent foundations.

The programme objectives started materialising in 2016, with clear economic improvement as an initial and fundamental step towards the ultimate objective of the programme.

This improvement has gained the endorsement of multiple economic and financial institutions and has clearly given a positive view of the economy shown by ratings (multiple upgrades by rating agencies) as well as sequential positive reviews by the IMF (timely and smooth release of tranche payments of the IMF loan stand as a strong proof of that), and many other local, regional and international economic institutions.

Unfortunately, positive tides always bump against rocks, but in doing so only become stronger.

Lately, an article was published by Foreign Policy magazine which included numerous false and incorrect statements. It then started circulating on social media.

Unfortunately, the article is severely blinded by the political views of the author, who attempts to both hide and distort facts and numbers published by international entities.

This was exacerbated by the negligent handling of the article, which is extremely unbecoming of the professional Foreign Policy team.

Accordingly, and to ensure objectivity, below is a simple eight-point comparison between Egypt’s economic position in 2012/2013, and its current economic standing as of 2018/2019.

1. Egypt’s economy grew by 2.1 percent during 2011-2013, a rate that fell short of the population growth rate, driving the average citizen’s share in the growth pie to decrease. In 2018/2019, Egypt’s growth rate reached 5.6 percent, according to the latest published Ministry of Planning figures, as well as IMF updated estimates, with average citizen’s share of the growth pie growing by 2.2 percent.

This makes Egypt one of the strongest and highest growth performers in the region and across emerging countries. This solid growth performance was cited by all rating agencies, like Moody’s and Standard & Poor’s, as well as international institutions such as the World Bank, the African Development Bank, and the IMF.

Maybe all these professional institutions are wrong, and the author of the Foreign Policy article is right?

2. According to Egypt’s official statistics body CAPMAS, the unemployment rate averaged 12.7 percent in 2011-2013 before following a steady declining path over the past four years to reach a low of 8.1 percent in March 2019. Creating more jobs for the youth and the Egyptian people stands as the most important benchmark of whether current growth story is benefiting wider segments of the population or not. Thus, not only is growth picking up in Egypt, but it is enabling more people to find jobs.

3. Egyptian public finance is certainly in a much better and healthier position today than it was in 2013. According to the Ministry of Finance’s latest estimates as well as the IMF, Egypt’s overall deficit (government expenditures less revenues) will decline to 8.4% of GDP in 2018/19, compared to 13 percent of GDP in 2012/2013.

4. More importantly, the Ministry of Finance is one month away from officially announcing the realisation of a primary surplus this year (2018/2019) for the first time in 15 years. A primary surplus means that the current government revenues would exceed its spending without interest payments. This standard and important indicator reflects current government adopted policies throughout the year, without considering the interest payment bill, since it reflects the stock of government debt that was accumulated over the years due to successive policies of previous governments.

To reiterate, Egypt is on track to realise a primary surplus worth 2 percent of GDP versus a primary deficit worth 5 percent of GDP in 2012/2013. This means that the current government’s policies have enabled Egypt’s government to realise surpluses after years of running deficits that peaked in 2012/2013 (when the author’s party was in charge).


5. The current Egyptian government was able to realise such surpluses even though it tripled spending on investments over the past four years to upgrade the infrastructure base and improve basic services for the entire population, including availability and reliability of electricity supplies, along with improving the quality of existing electricity stations and grids.

The government also spent billions to extend the road network and its quality, to improve connectivity across governorates and to significantly bring down road accidents and fatalities. The government also financed one of the biggest global campaigns, which screened the entire 100 million population for hepatitis C and other critical diseases and at the same time provided immediate free treatment for all patients. At the same time, the government has been financing one of the biggest social housing programmes globally with almost 700,000 units being delivered in four years.

6. It is also worth mentioning that the government has realised a primary surplus despite spending more on social programmes and on social safety nets. To mention a few items, the budget allocations to food subsidies increased to EGP 87 billion in 2018/19, up from EGP 35 billion in 2013/2014. Annual budget allocations to treat citizens on behalf of the government, including covering their health insurance bill, increased to EGP 9 billion in 2018/19 after it was just over EGP 1 billion back in 2013/2014. The budget allocation to finance cash transfer programs (Takaful and Karama) reached EGP 17.5 billion in 2018/19 versus less than EGP 5 billion in 2013/14.

7. On the debt side, one must pinpoint that total government debt (domestic and external) would reach 91 percent of GDP this June after peaking at 107 percent in June 2017 (after the devaluation) and after reaching 90 percent in June 2014. These official figures have been reviewed and confirmed by so many international and local independent and professional institutions.

This means that the current government policies enabled Egypt to bring down its total debt (domestic and external) by 16 percent of GDP in just two years, making the government one of the best performers in terms of its ability to bring down debt levels as a ratio of GDP. This does not mean that current debt level is not still high, and that is why the government has official published its medium-term targets to further bring the debt to GDP ratio down to 80 percent in June 2022.

8. According to the Central Bank of Egypt, the net international reserves stand today at $44 billion (allowing Egypt to have a buffer that can finance the imports bill for more than 8.5 months) versus $14.9 billion in June 2013. This occurred as Egypt’s current account deficit (the sum of the trade balance of goods and services, plus money transferred by Egyptians living abroad back home) declined from a peak of almost 5 percent of GDP in 2012/2013 to almost 2.5 percent of GDP in 2018/2019.

To conclude, Egypt’s economic performance and fundamentals have been significantly improving due to adopted reforms and polices, making the economy stand on a stronger footing relative to where it was in 2013. This economic turnaround story is one which all Egyptians contributed to and so all Egyptians should get credit for. 

*Dr Gihan Saleh is the economic advisor to Egypt's prime minister.

 

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