Economic resilience: Adjusting to the new normal

Naglaa Arafa
Tuesday 23 Apr 2024

Egypt has the time and budget needed to move forward with the structural reform of the economy, as well as to strengthen its economic resilience, writes Naglaa Arafa


In his speech on 2 April upon taking the oath for the new presidential term, President Abdel-Fattah Al-Sisi outlined seven key goals of the national programme in the coming phase including Goal 3 “to adopt strategies that maximise Egypt’s economic capabilities and resources and enhance the solidity and resilience of the Egyptian economy in the face of crises.”

With the increasing frequency, complexity, and detrimental impact of global and regional shocks on economic activity, uncertainty has become the new normal to which countries need to adjust. But in facing shocks and crises, policymakers and governments are continuously being challenged by the availability of policy space, time, and budgets. Specifically, economic uncertainty constrains the investment environment by reducing the readiness of businesses to invest and the willingness of consumers to spend, since they both become risk averse. 

In responding to this uncertainty, economic resilience has become the new buzzword. It refers to the preparedness and ability of people and economies to adapt to change and to absorb, manage, and recover from shocks. It’s a reminder of the saying of former South African president Nelson Mandela, “do not judge me by my success. Judge me by how many times I fell down and got back up again.”

Economic resilience is not only about the performance and stability of macroeconomic indicators such as economic growth, inflation, the foreign exchange rate, Gross Domestic Product (GDP), the balance of payments, and the balance of trade. It is also about, but is not limited to, the early identification and assessment of economic vulnerabilities and developing the necessary solutions to them, including risk management and building the capacity to respond, a broad and diversified industrial base, a skilled workforce, the expansion of digitisation and digital literacy, human capital formation, women’s economic empowerment, production and productivity, and economic research institutions able to support policymaking. 

International organisations and think tanks have been studying the dimensions of economic resilience and have even developed an Economic Resilience Index (ERI). The ZOE Institute for Future-Fit Economies, a European think tank, has published its “Economic Resilience Index: Assessing the Ability of EU Economies to Thrive in Times of Change” (2023), which assesses the economic resilience of 25 European member states, mostly in the years 2020 and 2021. The ERI is composed of 27 indicators divided into six vital resilience dimensions, namely Economic Independence, Education and Skills, Financial Resilience, Governance, Production Capacity, and Social Progress and Cohesion. 

The results point to some interesting aspects of economic resilience, such as the importance of adopting a holistic approach to it rather than a narrow focus on GDP growth, and the weak correlation between the ERI and GDP because larger high-income countries such as France, Spain, and Italy rank in the middle, or lower, groups of the ERI. 

They also demonstrate that economies can simultaneously perform strongly in specific resilience dimensions and weakly in others. For example, Italy and Romania have high economic independence scores but low scores for all other dimensions of the ERI, which indicates that economic resilience is not only about import and export market diversity, or energy independence, but is also about other dimensions such as education and skills or social progress and cohesion.

According to World Bank and International Monetary Fund (IMF) reports, India and Indonesia have shown resilience following two huge global crises, namely the Covid-19 pandemic and the Russian-Ukrainian war. The World Bank’s India Development Update (IDU), a half yearly report on the Indian economy, notes that despite significant global challenges India was one of the fastest-growing major economies in the 2022-2023 financial year at 7.2 per cent.

According to the IDU, this resilience can be attributed to several factors, such as robust domestic demand, strong public-sector investment, the strengthening of the financial sector, bank credit growth, conducive conditions for private investment, and strong service-sector activities.

With regards to Indonesia, a press release from the IMF’s 2023 Article IV Mission to Indonesia acknowledges its forward-looking and well-coordinated policies that have helped it weather the highly challenging global environment of 2022 with healthy growth, falling inflation, and a stable and profitable financial system. Strong macroeconomic management resulted in debt levels that are manageable and in policy space that is adequate to respond to shocks. 

Economic growth is supported by strong domestic demand, solid export performance, the attainment of a three per cent budget deficit target, a new tax harmonisation law to boost tax receipts, and a timely increase in fuel prices to contain a rising subsidies bill. The financial system appears to be resilient, with the country’s banks enjoying strong buffers and the credit growth having been robust. However, the IMF nevertheless calls for the advancement of broad-based structural reforms to promote an enabling business environment.

Egypt has come a long way in building the necessary infrastructure to attract investment, and as a result there came the breakthrough signing of $35 billion in foreign direct investment (FDI) to develop the Ras Al-Hekma area of Egypt’s North Coast on 25 March. This was followed by the signing of the Egypt-EU Strategic Partnership Agreement, which provides a concessional loan of five billion Euros, investments in the amount of 1.8 billion Euros, and grants in the amount of 600,000 Euros. 

On 29 March, the IMF announced the approval of the augmentation of its original programme with Egypt by $5 billion. The international ratings agencies have also revised Egypt’s economic outlook to positive. 

Collectively, these developments allow Egypt some flexibility in terms of the time and budget needed to consider and implement policy options that will allow it to move forward with the long-awaited structural reform of the economy. In addition, strengthening the foundations of economic resilience, as called for by the president, should be an ongoing process and one that warrants further economic research.

It should take centre stage in national and global dialogues in the face of growing risks and uncertainty.

* The writer is former assistant resident representative and governance team leader for UNDP Egypt.

* A version of this article appears in print in the 25 April, 2024 edition of Al-Ahram Weekly

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