Economic outlook brightens

Gamal Essam El-Din , Tuesday 19 Mar 2024

World Bank and the European Union financing packages leave officials upbeat about the economy, writes Gamal Essam El-Din

Economic outlook brightens

 

On Monday, the World Bank announced that $6 billion will be offered to support Egypt over the next three years. Minister of International Cooperation Rania Al-Mashat said the new package will be used to support Egypt’s economic reforms and accelerate the privatisation programme.

A day earlier, the European Union (EU) said it would provide Egypt with a 7.4 billion euro package of loans, grants, and investments over four years after President Abdel-Fattah Al-Sisi signed a comprehensive strategic partnership with European Commission President Ursula von der Leyen at the Ittihadiya Palace on Sunday. Von der Leyen was accompanied by the prime ministers of Greece, Italy, Belgium, the chancellor of Austria, and the president of Cyprus.

The assistance from the World Bank and the European Union, announced two weeks after Egypt reached a $8 billion loan deal with the IMF, left many in official circles insisting that that the dollar shortage will soon come to an end.

In a speech at the Police Academy on 15 March, President Al-Sisi said economic conditions were improving and Egypt is on track to solving its problems.

While international developments, including the Covid-19 pandemic, the war in Ukraine and then the war in Gaza, hit Egypt’s economy hard, President Al-Sisi said “the measures we have taken over the last few weeks will bring us back on the right track and improve economic conditions.”

Among signals that economic conditions are improving, Al-Sisi cited the daily release of goods stuck at ports.

“After the influx of foreign exchange, I gave instructions to the government to act swiftly to release goods in a bid to reduce the prices of strategic commodities and help cut inflation rates,” he said.

Prime Minister Mustafa Madbouli has also been sounding optimistic, saying $3 billion worth of goods had been released from ports in recent days “thanks to the availability of foreign exchange and coordination with the Central Bank”. He also said the government was in a position to meet it commitments to “foreign partners”.

Some media outlets put the government’s arrears to international oil and gas companies at $ 6 billion and say the Ministry of Petroleum is planning to pay $2 billion of the total.

Madbouli also pointed out that remittances from Egyptians working abroad are returning back to normal levels after the disappearance of the black market following the floatation of the Egyptian pound.

Banque Misr Chairman Mohamed Al-Etrebi told Extra News TV channel that transfers from Egyptian expats have increased 10-fold since the Central Bank floated the pound on 6 March. Expat remittances had dropped by 30 per cent to $22 billion in 2023 from $31 billion two years ago. Remittances from Egyptian expats are a major source of foreign exchange, one the government wants to see increase to $53 billion by 2030.

Abdel-Meguid Mohieddin, head of Al-Ahly Exchange Company, told the media on Monday that customers have sold over LE3.2 billion worth of US dollars. “On Sunday alone customers sold LE1.8 billion of US dollars and the de-dollarisation was helping the Egyptian pound to appreciate against the dollar.”

On Monday, the dollar was exchanging hands in banks at LE47.8 to LE47.9, down from LE49.5-5 on floatation day.

Finance Minister Mohamed Maait announced that following the agreement with the IMF on 6 March, Egypt received pledges of more than $20 billion in foreign support. The figure includes $8 billion from the IMF, $7.4 billion from the European Union, and $6 billion from the World Bank.

“These inflows, together with the flexibility of the exchange rate, will help the country address the chronic problem of US dollar shortages,” said Maait.

The finance minister pointed out that international credit rating agencies like Moody’s and S&P Global Ratings have already upgraded Egypt’s credit outlook to positive, citing significant increases in foreign direct investment and recent policy measures taken by the Central Bank of Egypt.

In a report on Monday, S&P cited “the significant steps” taken by the authorities to address the country’s macroeconomic imbalances as well as foreign exchange inflows as the main drivers behind its outlook upgrade. It also said that CBE’s decision to float the pound should put an end to the parallel foreign exchange market and help shore up foreign currency reserves.

On Tuesday Maait told the media that financial aid packages from foreign partners will help Egypt withstand future internal shocks, and that, “in addition to these packages, we are working hard to attract foreign investments and boost exports, including offering LE23 billion to help investors expand their export activities in the new 2024-25 budget.”

The FY 2024-25 budget will also help reduce the impact of recent reform measures on the most vulnerable.

“We are planning to spend LE596 billion in subsidies, of which LE134 billion will be on food commodities and more than LE147 billion on petroleum products,” said Maait.

He indicated that expenditure in the new FY 2024-25 budget is estimated at LE3.9 trillion, with revenues expected to reach LE2.6 trillion, LE2 trillion of which will come from taxes.

In line with the agreement with the IMF, government-financed investments will not exceed LE1 trillion and half of the proceeds coming from the privatisation programme will be allocated to reduce government debts and servicing costs.

“This leaves room for the private sector to double its investments and increase its contribution to the national economy,” said Maait.


* A version of this article appears in print in the 21 March, 2024 edition of Al-Ahram Weekly

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