Holding steady

Al-Ahram Weekly Editorial
Tuesday 21 Apr 2020

The announcement by credit rating agencies Standard & Poor’s (S&P) and Moody’s of maintaining Egypt’s outlook at stable, keeping their ratings unchanged, could not have come at a more opportune time. As Minister of Finance Mohamed Maait said earlier this week, the credit rating reflects the confidence of international institutions and credit rating firms in Egypt’s ability to deal adequately with the Covid-19 crisis. 

It goes to show, like the minister said, that the economic, monetary and fiscal reforms adopted since November 2016 helped strengthen the economy to cope with internal and external shocks. Economists agree: if it had not been for the role of reforms in stabilising the economy, things could have been much worse. 

All indices are looking good. Unemployment fell to 7.5 per cent, its lowest level in 30 years, in the second quarter of 2019 compared with 13 per cent six years ago. Foreign reserves recorded more than $45 billion compared to $17 billion three years ago. The country’s budget deficit came in at 8.2 per cent of GDP for fiscal year 2018-19, compared to 10.9 per cent in 2016-17 and 12.5 per cent the previous year. Egypt welcomed 13.1 million tourist arrivals in 2019, and revenues from the sector grew to $13.3 billion, compared to $11.6 billion in 2018.

According to the minister of tourism and antiquities, the number of tourists who visited Egypt in January and February this year was the highest in the history of tourism in Egypt. This indicated that 2020 would have been very promising for the country’s tourism industry.

The devastating effect of the global lockdown and social distancing measures could have far reaching repercussions on the economy. Remittances, which represent 10 per cent of GDP, are expected to be affected by the drop in oil prices and employee dismissals. Tourism, which makes up five per cent of GDP, has ground to a halt. And the slowdown in global trade will reflect on Suez Canal revenues. 

But although the government is aware that the virus is a threat to gains made throughout the past three years, it is not dwelling and is acting proactively to contain its effects. The rolling out of measures to help those most affected and easing the burden on industries are part of a comprehensive stimulus package to boost the economy in times of crisis.

S&P, which has affirmed its “B/B” long- and short-term foreign and local currency sovereign credit ratings for Egypt, said the stable outlook reflects its expectation that the fall in Egypt’s GDP growth will be temporary, and the rise in external and fiscal imbalances will remain contained. It also said it expected external and government debt metrics to gradually decline from 2022.

Moody’s has kept Egypt’s credit rating at B2 with a stable outlook. It said that ongoing fiscal and economic reforms will support gradual but steady improvement in Egypt’s fiscal metrics and raise real GDP growth.

The ratings are reassuring to investors, especially at a time when growth forecasts are being slashed. The International Monetary Fund has calculated a two per cent GDP growth in fiscal year 2020 and only a slightly higher 2.8 per cent for the following year. And despite these forecasts being a far cry from the 5.6 per cent expected in the current fiscal year, Egypt remains much better off than the negative forecasts for most of the Middle East and North Africa oil importers, as per IMF figures.

While the exact impact will depend on the duration of the crisis and when the virus can be contained, the government is doing the right thing in prioritising human life, regardless of the cost. As the IMF said in its April 2020 Regional Economic Outlook report, “In the current circumstances, the immediate priority should indeed be to save lives, protect the most vulnerable and safeguard critical economic sectors, including through outright support to the financial sector, as needed. Fiscal policy should accommodate urgent spending needs, particularly to support emergency services and enhance healthcare infrastructures.”

 

*A version of this article appears in print in the  23 April, 2020 edition of Al-Ahram Weekly

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