Egypt is the only country in the Middle East and North Africa that will witness positive real GDP growth, expected at 3.5 percent, in 2020, according to the International Monetary Fund (IMF).
The figures emerged in the IMF’s update report, released Monday, on the Middle East, North Africa and Central Asia (MCD)’s economic outlook.
All countries in the group, except Egypt, are projected to see negative growth in 2020, with a rebound to 2.2 percent growth in 2021, according to the report.
Yet, weaknesses in Egypt’s growth during the second half of 2020 are reflected in lower projections for FY2020/2021 (which started July 2020), as the IMF expected real GDP growth to drop to 2.8 percent.
During an online press conference, Jihad Azour, director of the IMF’s Middle East and Central Asia department, said the economic reform programme Egypt adopted in November 2016 enabled the country to improve its economic indicators before the coronavirus pandemic with a growth rate of more than 5.5 percent. As a result of the reform programme, there was a significant decline in fiscal deficits and an improvement in fiscal indicators and the level of foreign exchange reserves in the central bank.
Azour added that Egypt needs to support the structural reforms it adopts and allow a greater role for the private sector to be able to maintain its positive indicators in the coming period.
The report also highlighted Egypt’s action to tap into international financial markets through issuing $750 million in green bonds in May as an instrument to deal with the financial challenges caused by the pandemic.
In 2020, first quarter real GDP for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP), inclusive of Egypt, contracted by five percent year-on-year, while oil GDP is expected to contract by 7.7 percent, reflecting OPEC+ agreements on production cuts caused by sluggish external and internal oil demand and US sanctions on Iran’s exports, according to the report.
Within MENAP, median government debt is projected to rise above 70 percent of GDP over the medium term, according to the report.
For the MCD, the report projected the region’s real GDP to drop by 4.1 percent in 2020, after growing by 1.4 percent in 2019, with a projected contraction for 2020 of 1.3 percent larger than in April's forecasts.
The report said that despite the supportive policies the region’s countries have adopted to contain the Covid-19 crisis, IMF growth revisions reflect a deeper than expected impact of lockdowns on mobility, in addition to weak global growth.
Consumer demand also took a hit because of weak tourism and remittance inflows, which are key income sources for the region, according to the report. Remittance inflows to the region saw declines ranging from six percent year-on-year to more than 25 percent during the first half of 2020, according to the report.
Fiscal accounts in several countries in the region deteriorated during the first half of 2020, ranging between 0.8 percent of GDP up to four percent of GDP, which implies sizable deterioration compared to the same period in 2019, according to the report.
Capital flows were highly volatile in March and April, with the MCD region seeing estimated outflows of $6 billion to $8 billion during this time, according to the report.
Deteriorated trade, tourism and remittances, along with confinement measures, continue to depress growth in MENAP’s oil importers, including Egypt, which is now projected at −1 percent for 2020, after an expansion of 2.8 percent in 2019, according to the report.
In an environment of weaker demand, inflation is projected to remain low for most countries in the region, the report predicts.
The MCD will also face external debt amortisations of about $45 billion in 2021, most of which correspond to sovereign debt service, according to the report.
The report revealed that 24 countries in the region are expected to cut capital spending in 2020 under crisis pressure on their budgets, projecting total government spending, in nominal terms, to increase in only eight countries out of 29, while non-interest current expense is expected to increase in 18 countries.
On the other hand, the unprecedented contraction in economic activity is projected to increase non-interest spending as a share of GDP in 22 countries, according to the report.
The Covid-19 crisis will also increase deficits because of significant projected declines in revenues, which are projected to decline by 4.8 percent of 2019 GDP.