The figures are very telling regarding the resilience of the Egyptian economy. A report by the Cabinet’s media centre showed the economy was growing at 6.6 per cent in 2021-22 compared to 2.9 per cent in 2013-14, the fastest rate in 14 years despite the repercussions of the Russian-Ukrainian crisis. GDP at current prices has grown more than threefold according to the report compared to 2013-14. The report also highlighted that unemployment is at a record low, registering 7.4 per cent in 2021, the lowest in three decades, compared to 13 per cent in 2014. But policy makers are aware that more is needed to keep that momentum amid difficult global conditions, with global growth projected to slow to 3.6 per cent according to the International Monetary Fund (IMF) estimates.
This week Prime Minister Mustafa Madbouli met with the new governor of the Central Bank of Egypt (CBE) to discuss fiscal and monetary policies to deal with the current challenges, crucial coordination at the present juncture. Providing the necessary funds to manage strategic and basic commodities as well as production requirements for factories were the key focus of the meeting with the CBE governor, according to Madbouli. For months now economic activity has been constrained by regulations restricting imports. While intended to protect the country’s precious hard currency reserves, such regulations were causing shortages in production inputs and spare parts, bringing some factories almost to a halt. Gradually, these regulations are now being loosened.
While the stipulation that importers must use Letters of Credit (L/C) has not been officially cancelled, the Ministry of Finance is trying to make life easier for importers whose goods are held back in ports by exempting them from customs fines and accepting delays in finalising the paperwork. Doing away with L/Cs is likely to cause a rush for hard currency, causing a strong depreciation of the pound. While such depreciation seems inevitable – already the pound has been steadily losing ground, depreciating by around 22 per cent since March – the CBE is probably looking for ways to provide the pound with soft landing to avoid a strong shock to its value.
Egypt’s hard currency holdings have been tested by the higher import bills for basic commodities such as oil and wheat, due debt instalments and foreign portfolio investors fleeing the debt market. The much-awaited agreement with the IMF would ease the hard currency crunch. Two weeks ago Prime Minister Madbouli said the government was in the final stage of negotiations over the new IMF loan. And while observers have criticised Egypt’s growing external debt, the report by the Cabinet media centre shows that the debt rates in Egypt are lower than global rates, where government debt as a percentage of GDP recorded 87.2 per cent in 2021-2022 (compared to 89.3 per cent in 2013-14), while the ratio of global government debt to GDP in 2022 is expected to reach 94.4 per cent, and the ratio of government debt in advanced economies to GDP is expected to reach 115.5 per cent in 2022.
The Egyptian state is intensifying its efforts to face the challenges posed by both the Covid-19 pandemic and the Ukrainian crisis, according to Madbouli. Among those efforts, incentives to attract foreign investments are being discussed. One way of doing this would be through selling stakes in state-owned companies. In that framework Madbouli met with the heads of the Egyptian Stock Exchange and the Financial Regulatory Authority to discuss plans to move ahead with previously announced plans to do just that.
So far the government has done a great job of keeping the economy on its feet, making sure there is no shortage of basic needs, but now is the time to see it moving again, ensuring that factories are working and new factories are being built to create jobs.
*A version of this article appears in print in the 8 September, 2022 edition of Al-Ahram Weekly.