Egypt’s macroeconomic performance has proved its resilience against the severe impact caused by the pandemic but with a number of challenges ahead, according to the World Bank’s Egypt Economic Monitor report issued on Tuesday.
For over 18 months during the Covid-19 pandemic, Egypt’s macroeconomic indicators have been proving its resilience despite the severe impact the pandemic has resulted in, with expectation for the country’s economy to approach its pre-pandemic levels during the current FY 2021-22 (ending in June) with a projected 5.5 per cent in real GDP growth, the report said.
Egypt’s GDP is expected to reach LE7.1 trillion in the current FY 2021-22, targeting a real GDP growth rate of 5.6 per cent, compared to 3.3 per cent recorded in FY 2020-21, according to the Ministry of Finance.
“Macroeconomic stabilisation and energy sector reforms implemented in recent years have helped build resilience, and the mobilisation of international financing has contributed to keeping foreign reserves at rather ample levels,” the report said.
Egypt’s international reserves came in at $40.9 billion in December. The reserves have been rising since June 2020, after dropping to $36 billion from more than $45.5 billion due to the financial impact of the coronavirus pandemic.
Monetary easing and selected sectoral support partially alleviated pressure on households and private businesses and contributed to the reduction of domestic borrowing costs for the public sector, the report explained.
It also highlighted Egypt’s actions in terms of public debt management, promoting financial inclusion and boosting the business environment through easing customs clearance and facilitating business restructuring procedures.
During the report launching event, Marina Wes, the World Bank country director for Egypt, Yemen and Djibouti, said that Egypt’s economy continues to show resilience against the pandemic under the country’s reform programme, highlighting the country’s progress in the digital transformation sector, particularly the Digital Egypt strategy.
Meanwhile, the report expected the country’s goods and service exports to continue recovering, while projecting external financing to remain rather elevated through FY2022/-as imports are expected to inch up in tandem with the resumption of growth with the recent appreciation in the real exchange rate.
In this respect, the report pointed out that the country’s export-oriented sectors that were affected by the onset of the pandemic, including tourism, manufacturing, extractives, and the Suez Canal, started picking up, contributing to increasing the country’s economic growth to 7.7 per cent in the fourth quarter of FY2020-21, up from a contraction of 1.7 per cent in 2019-20 amid the pandemic crisis and a further 9.8 per cent in the first quarter of FY2021-22.
Nevertheless, the report listed a number of challenges emanating from Covid-19 that are likely to restrain Egypt’s economic rebound, including the increase in the Omicron variant and vaccine deployment, in addition to the uneven recovery that is overshadowing the global economy.
On unemployment, the report said it had contracted to 7.5 per cent during the first quarter of the current fiscal year, down from 9.6 per cent at the height of the pandemic by the end of 2019-20. However, the report said that the market’s employment rates remain below the 40.4 per cent of the working-age population, mirroring the long-standing challenge of job creation, particularly in the formal sector.
“The Covid shock has also led to dropouts from the job market, notably by women whose labour force participation rate was recorded at 15.4 per cent in the first three months of the current fiscal year, which is below pre-Covid levels,” the report stated.
The government debt-to-GDP ratio has increased which is the case worldwide. Relatively high real interest rates and additional fiscal requirements have contributed to this uptick, the report explained.
The government debt-to-GDP ratio increased from 87 per cent at the end of 2019-20 to an estimated 91.6 per cent at the end of 2020-21.
Also, Egypt is still encountering the dual challenge of pursuing fiscal consolidation while increasing spending mainly on social protection and investment.
“Fiscal consolidation over the past years has helped reverse the chronic primary deficit into a solid and sustained surplus. However, fiscal space remains constrained by the still large interest burden and low revenue-mobilisation,” the report said.
This limited allocation to the health and education sectors remains despite their increase in nominal terms by 43.1 per cent and 33 per cent respectively during the three-year period from 2017 to 2020. These increases are relatively marginal when measured in real terms with sector allocations as a share of GDP at 1.5 per cent and 2.4 per cent respectively as per the 2021-22 budget are below their pre-2017/2018 levels, according to the report.
Touching upon Egypt’s second wave of reforms that centres on achieving structural reforms, the report underlined the government’s key target that focuses on raising the efficiency of public institutions through digital transformation.
In this regard, the report demonstrated that Egypt has been increasingly adopting digital solutions to modernise key government systems and providing online service portals, setting the country at a high level of government digitalisation, according to international indices.
“This not only holds the potential of transforming public service delivery but will also provide incentives for more widespread uptake of digital technologies across the whole economy, as individuals and businesses are offered more accessible means of (two-way) digital communication and interaction with the public sector,” the report explained.
*A version of this article appears in print in the 10 February, 2022 edition of Al-Ahram Weekly.
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