In a bid to curb the negative impacts of COVID-19 on Egypt’s economy, President Abdel-Fattah El-Sisi and the cabinet have carried out a number of precautionary and pre-emptive actions to protect Egypt’s economic reform efforts from the impact of the coronavirus outbreak.
On 14 March, President El-Sisi instructed the government to allocate an economic package worth EGP 100 billion to fight the coronavirus outbreak.
In a meeting with Prime Minister Mostafa Madbouly and the ministers of finance, planning and economic development, President El-Sisi instructed the cabinet to adopt a number of measures to improve payrolls for state employees.
On 15 March, Minister of Finance Mohamed Maait announced the plan for implementing the president’s directives.
Maait said that all the president’s policies issued on Saturday will be implemented as of FY2020/2021, including an increase of the tax exemption ceiling to EGP 15,000, up from EGP 8,000, in addition to raising the personal exemption ceiling to EGP 24,000.
He added that FY2020/2021 will also offer a new tax bracket of 2.5 percent for those whose income is under EGP 35,000 annually.
Furthermore, employees subject to the civil service law will be granted 7 percent of their basic payroll as a salary increment as of 30 June, with a minimum of EGP 75 monthly without a maximum level, while employees who are not covered by the law will get an increment of 12 percent with the same conditions, Maait said.
He also asserted that the ministry is committed to the president's instructions on providing financial allocations to implement the state’s plans to combat COVID-19, with a total of EGP 100 billion.
On the other hand, the minister said that EGP 187.7 million has been allocated preliminarily for the Ministry of Health, including EGP 153.5 million for buying materials to counter the coronavirus, and EGP 34.1 million as bonuses for those who work in quarantine.
“All these procedures are in line with the state’s willingess to help all citizens reap the fruits of the economic reform programme,” as Maait said.
Emphasising the stability of Egypt’s fiscal situation, Maait said that Egypt’s fiscal performance indices over the last eight months of FY2019/2020 were good, attaining a primary surplus of EGP 38 billion, accounting for 0.5 percent of the GDP, up from EGP 28.5 billion the previous fiscal year.
He added that the overall deficit recorded 4.9 percent, explaining that financial burdens and obligations were paid early from October to December 2019 instead of the scheduled April to May 2020, which reflects the stability of Egypt’s fiscal position.
He also said that there are presidential policies for FY2020/2021 that focus on the middle class, priority care groups, education, healthcare, manufacturing and export boosting initiatives.
Furthermore, according to the minister, the draft budget for FY2020/2021 is about to be finalised next week, and will be submitted to the cabinet and then to parliament before the end of March.
He added that the new tax system, which will be included in the FY2020/2021 budget in light of the recent presidential economic policies, includes a new category for payroll taxes, as a 25 percent tax will be imposed on those whose annual income exceeds EGP 400,000.
Meanwhile, Vice Minister for Financial Policies and Corporate Advancement Ahmed Kojok explained that the FY2020/2021 draft budget targets a primary surplus of 2 percent of the GDP, lowering the budget deficit to 6.2 percent and bringing the public debt to GDP ratio to 80 percent.
He added that it will also involve a package of procedures and initiatives aimed at enhancing social protection, human development, and backing economic activity.
The Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) held on 16 March an exceptional meeting to review key interest rates in light of the state’s precautionary plan.
The MPC cut key interest rates by 3 percent, 300 bps, bringing the overnight deposit rate, overnight lending rate, and the rate of the main operation to 9.25 percent, 10.25 percent, and 9.75 percent respectively, and the discount rate was also cut by 3 percent to 9.75 percent.
In a statement, the CBE explained that the MPC’s pre-emptive decision provides appropriate support to domestic economic activity given the current challenging external environment, while the inflation outlook remains consistent with achieving the inflation target of 9 percent (±3 percentage points) in the fourth quarter of 2020.
The MPC also announced that it keeps an eye on all economic developments and will not hesitate to adjust its stance to achieve its price stability mandate over the medium term.
Following the cuts, CBE governor Tarek Amer said in a press conference that the CBE has taken precautionary pre-emptive procedures in response to the global challenges, asserting that Egypt’s economy is solid.
He added that the new cuts are the biggest since the implementation of the Egyptian pound floatation, and that he expects a boost to public, private, and public business sector companies.
“The new cuts also will support companies significantly, especially that its debts hit 2.8 trillion. These debts will decline by billions after applying the new cuts, easing the burdens for both the private sector and the finance ministry,” Amer said.
He added that the finance ministry has internal debt exceeding EGP 4 trillion, and the new cuts will help it boost other sectors and will have a positive impact on bank clients.
Amer said he has instructed all banks to extend due dates for debts by small, medium, and bid companies by six months in all sectors, urging all clients to use bank cards and electronic payment and avoid using cash.
The CBE has also launched an emergency package of procedures to ease banking operations in the wake of the coronavirus outbreak and to support the national economy in the current phase.
The CBE instructed domestic banks to raise daily transaction limits on credit cards, as well as cancel fees and commissions applied at points of sale and on withdrawals from ATMs for six months.
It also instructed banks to postpone credit dues for individual debts, including real estate loans, and loans for consumer purposes for six months with no fines or deposits in case of late payment.
The CBE added that is following all updates on the domestic and global levels regarding the coronavirus, committing to take all necessary actions to preserve banking and monetary stability.