Egypt’s FY2021/2022 draft budget targets, particularly its initial surplus projections, are expected to put the country’s elevated debt levels on a downturn path alongside with other required procedures in this regard, according to the Practice Manager for Macroeconomics in the Middle East and North Africa (MENA) region at the World Bank (WB) Kevin Carey.
With Egypt's FY2021/22 beginning in July, Carey made his comments in his answer to Ahram Online's question on how Egypt’s four-year medium-term strategy - that eyes handling the debt issue as well as the FY2021/22 targets - can contribute to address Egypt’s high level of debt amid the ongoing COVID-19 crisis.
This came during a virtual event, the WB organised on Friday, to launch its updated report on the MENA economy entitled “Living with Debt: How Institutions Can Chart a Path to Recovery in the Middle East and North Africa”.
Carey added that the COVID-19 crisis paused Egypt’s efforts to curb the escalated debt levels, as the government focused on meeting growing financial needs amid the crisis, especially in health and education sectors.
He added that Egypt needs to mobilise its revenues through tapping into its unused assets and considering its taxes system with an aim to enhance it more.
For Egypt’s four-year strategy that aims at reducing its public debt through exchanging it with high-value assets, Carey said that the effectiveness of such a strategy could be felt.
Meanwhile, the WB’s Lead Economist Daniel Lederman said that the high level of spending to address the pressures of the pandemic placed on the budget has limited the country’s fiscal space.
He added that bringing the pandemic under control and accelerating the vaccine deployment in the MENA region will alleviate the financial burdens on the budgets and leave room for economic growth to occur.
Roberta Gatti, the WB’s Chief Economist of MENA, stressed that the region will not restore its growth pre-pandemic levels, if it does not manage to put the pandemic under control.
She added that transparency plays and good governance are expected to play a vital role in debt management in the region and in achieving high growth levels, especially since the high level of debts was matched with low growth rates historically.
She also noted that adopting such procedures are expected to reduce the risks the region’s economies are experiencing and lower the costs of borrowing.
“Transparency will play an important role in helping MENA countries address the trade-offs between short-term needs and the long-term risks of public debt. Transparency in the use of public information on the spread of COVID-19 and vaccination programs can help accelerate the recovery. In turn, reforms that improve debt transparency and the quality of public investment can be implemented immediately, reducing borrowing costs and raising long-term growth. Simply put, transparency can help chart a path to lasting recovery for the MENA region," Gatti explained.
The WB’s report said that the COVID-19 pandemic exacerbated long-standing development challenges in the MENA region, contributing to a rise in poverty, a deterioration of public finances, an increase in debt vulnerabilities and a further erosion of trust in government.
The substantial borrowing that MENA governments incurred to finance health and social protection measures increased government debt. Countries must continue spending on health and income transfers, which will add to already high debt burdens and lead to complicated policy decisions after the pandemic recedes, as according to the report.
The report showed that the region’s economies are estimated to have contracted by 3.8 percent in 2020, which is 1.3 percent above the WB’s forecasts in October 2020, while projecting the regional growth at 6.4 percent lower than the pre-pandemic growth forecast published in October 2019.
Also, according to the report, the estimated accumulated cost of the pandemic, in terms of GDP losses by the end of 2021, will amount to $227 billion.