Egypt has $20 billion as external debt obligations that are to be paid in the current FY2020/2021, as near-term pressures on the country’s foreign reserves are expected to rise due to a distressed global economy and turbulent financial markets amid COVID-19 crisis, according to the World Bank.
In its Egypt economic monitor report, released on Tuesday, the World Bank stressed that these pressures need to be contained, as part of the maturing external debt is expected to be extended or rolled-over.
This external debt includes the deposits of Saudi Arabia, UAE, and Kuwait in the Central Bank of Egypt (CBE), which amount to $17.2 billion.
The report also unveiled that the government debt to GDP ratio is projected to increase by the end of FY2020/2021, reaching 96 per cent, up from the 90.6 per cent expected in October. It is then expected to resume its downward trend by FY2021/2022.
COVID-19 has led to the harshest worldwide economic and financial crisis in at least the past seven decades, while the measures that were applied to contain the spread of the pandemic and to contain its impacts on the economies have actually caused a decrease in domestic production, disruption to the global supply chains and reduced global demand, according to the report.
All these challenges were compounded by the collapse in global oil prices as well, the report noted.
In light of that, the report pointed out that Egypt’s outlook is highly uncertain, with some negative repercussions already undermining the country’s growth as well as widening fiscal and external deficits.
In this regard, the report said that under the assumption that the pandemic will persist through early 2021, Egypt’s growth is projected to decline to 2.3 per cent in FY2020/2021, from the 3.6 per cent in FY2019/2020, before rebounding strongly in FY2021/2022.
Moreover, the country’s economic activity is expected to continue to contract at least through the second six months of 2020 (from July to December), according the report.
It also noted that if a vaccine against the pandemic will soon emerge, Egypt could see higher growth projections as of FY2020/2021.
Domestic demand is also expected to be negatively affected, as the pandemic has caused a slowdown in economic activity that, consequently, resulted in increasing joblessness as well as salary cuts, according to the report.
On remittances headed into Egypt, which accounted for 8.3 per cent of GDP in FY2018/2019, the report expected them to decline given the decline in global oil prices and the associated downturn in Gulf countries.
In addition, private sector investments are expected to drop due to the market's uncertainty.
For the tourism sector, which is the third source of hard currency for the Egyptian economy, the report noted that the COVID-19 restrictions the government had implemented have initially affected the sector negatively.
But by easing these retractions as of mid-May and with the supportive package the government introduced to the sector, tourism started to rebound with hotels' occupancy rate at 50 per cent recorded in July.
Finally, the report pointed out that macroeconomic stability, an improved business environment as well as upgrading human capital and firm capabilities represent a three-pronged approach for Egypt to achieve economic transformation in the wake of the ongoing COVID-19 crisis.