During the past few years, the economic development of various countries across the world has witnessed many highs and lows. The ever-changing oil prices, geopolitical developments, and the recent COVID-19 pandemic are the few factors that have altered the economic conditions of different states.
The MENA (the Middle East and North Africa) countries are no exception in this regard and Egypt stands out as an immaculate example of economic sustainability and rejuvenation among these countries. This article presents a comprehensive and comparative analysis of the Egyptian macro-economy and the economic situation not only during the COVID-19 pandemic but also in the past.
Even though many world economies have been on the receiving end of disastrous economic setbacks due to the COVID-19 pandemic, yet the resilient and prudent response of the Egyptian government has kept the lethal repercussions of this economic setback at bay for its people. With the support of the International Monetary Fund's economic reform program and its USD 5.2 billion stand-by agreement credit facility, this government has masterfully attempted to consolidate its fiscal condition, social safety system, and exponential growth under the umbrella of private sector initiatives unlike before.
The payment of these SBA funds is bearing fruits for the Egyptian economy nowadays and the assurance of IMF's assistance and review for implementation of these structural policy plans has made sure that this pattern of economic development will remain on its rightful course during the coming days. Nevertheless, there are certain challenges vis-à-vis this course of action which will be discussed considerably in the following lines along with the analysis of the Egyptian economy during the past years.
Economic Development in Different Sectors of Egyptian Economy
For understanding the economic development and challenges within the ambit of the Egyptian economy, there is a need for a statistically sound analysis of various sectors.
As far as the combined indicators of the real sector of the Egyptian economy are concerned, the growth rate of the Egyptian economy tumbled towards negativity with a decline of 3.57% by the end of the financial year 2019/20 like many other countries in the region and beyond.
Despite this negative situation, the Egyptian government did its best to change this situation with the help of its diversified economy and large market size and became one of the few countries in the MENA region to record a growth rate during peak days of the COVID-19 crisis. Therefore, it is no surprise that the wholesale and retail sector saw considerable growth during the financial year 2019/20 as compared to the same period in the previous financial year.The rise in unemployment due to the coronavirus has also seen considerable recovery after the culmination of the financial year 2019/20.
The financial sector in Egypt has maintained a healthy primary surplus because of its vigilant fiscal consolidation scheme and has substantially recovered from the declined primary deficit at the end of the financial year 2019/20. This sector is effectively back on track and the government believes that it can return to the 2% level by the financial year 2021/2022.
Even though the debt-to-GD ratio was more than 88% by the end of the financial year 2019/20, yet it was primarily due to the Egyptian government's optimistic investments for upgrading national infrastructure and developing new urban communities. During the tumultuous economic situation during the COVID-19 pandemic, the COVID-19 stimulus package has masterfully helped the depleting Egyptian economy.
The Egyptian external sector's performance has also become better with the improvement of the current account due to a constant decrease in trade deficit because of an increase in remittances and Suez Canal receipts.
Special relief steps for shipping in this Canal have made the year 2019/20 the 2nd highest in terms of the total weight shipped. Moreover,the diverse nature of the country's exported goods has ensured constant narrowing of the import-export deficit and has allowed the opportunity for Egypt's alternatives to come forward and penetrate new markets for Egyptian exports during the pandemic.
Foreign Direct Investment
Despite receiving a substantial setback due to the COVID-19 pandemic, the foreign direct investment in Egypt is still the best in the African continent and has amounted to USD 7.5 billion in the financial year 2019/20. Because of the ever-present investment opportunities in Egypt's domestic market, the reinvestment earnings have constituted around 41% of the total FDI inflows herein.
Inflation rates continuously declined during the FY 2019/20 from 9.37% to about 5.6% for the headline inflation, while core inflation decreased significantly from 6.39% to only 0.95% which provided the impetus for substantial growth of the monetary sector.
Moreover, the offer of 1-year investment certificates by the two leading state banks has also amassed EGP 383 billion which has exponentially helped in limiting hyper-inflationary movements in the market. The EGP: USD exchange rate was also stabilized by the end of December 2020 after witnessing a surge during the middle of the financial year 2020.
Reforms and Forecasts
The progress regarding structural and governance reform policies that are implemented by the Egyptian government in the context of the aforementioned SBA from the IMF is quite important with the IMF's medium-term forecasts for the Egyptian economy.
The policies which have been fulfilled under the IMF considerations include enactment of custom law no. 207 of 2020 for reducing non-tariff barriers, documentation requirements, goods valuation procedure, and other such encumbrances. This new law also encompasses a policy framework for the treatment of e-commerce exports and imports and digital activity while laying the ground for new tax items.
The state-owned enterprises (SOEs) are now obliged to accept law no. 185 of 2020 regarding the public enterprises which have opened new ways for modernizing the legal, operational, and governance structure of these enterprises. The financial information of these SOEs and economic authorities is now being updated as of the financial year 2018/2019 and is now published on the website of the ministry of finance.
Moreover, the goal of submission of the amendments for the anti-trust law to the Parliament has also been achieved which mandated the ECA with the power to supervise and control mergers and acquisitions.
Under the targeted policy changes, it has been emphasized that a new medium-term revenue strategy is to be introduced by the Egyptian government in due course of time which will aim to increase the revenue stream, and will overhaul the tax system for enhanced and smooth collection of taxes.
A more efficacious draft for apt laws vis-à-vis public finance management is also expected. Its enactment has the potential to alleviate the macro-fiscal policy for adequate reallocation of resources, contingency reserve, and supplementary appropriations.
Comprehensive public expenditure review for enhanced social protection is also on the cards and is expected to be finalized by April 2021. The subsequent reforms which are expected in the aftermath of this review will include offers for decent housing for the poor and marginalized groups, social protection for women, senior citizens, and expansion of school feeding program.
After all these assertions, it is no surprise that almost all the important economic indicators related to the Egyptian economy are quite stable and encouraging. Many targets which were set by IMF's forecasts for the financial year 2019/20 have been met and the Egyptian macro-economy is all set for an unprecedented boom in the times to come.
* Mr. Khalid TaimurAkram, Executive Director, Center for Global & Strategic Studies (CGSS), Islamabad