The Economic impact on Egypt of COVID-19

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The Economic impact on Egypt of COVID-19

Post by newcastle »

As the following article points out, Egypt’s economy is going to be hit simultaneously from several directions as a result of the COVID-19 epidemic. Today, it was announced that all Egypt’s beaches are to close. This is the least of their problems.

What does COVID-19 mean for Egypt's economy?
Yasser Al NaggarPublished in Ahram Online on 28 - 03 - 2020

COVID-19 has disrupted both supply and demand around the world. Egypt is not immune to the recessionary trends caused by the sudden halt in supply chains and the sharp decline in demand, domestically and globally, resulting from the rapid spread of the virus. The drop in economic activity is even more evident in a country that has adopted fiscal consolidation measures and increased public spending on major infrastructure projects that are underway. These policies worked while the economy was strong, but it is time to consider new strategies to promote the private sector as the government faces some tough decisions ahead.

The Egyptian government adopted an ambitious reform program starting in 2016, which included a currency devaluation, liberalization of certain sectors, and a phased lifting of state subsidies. The implementation of these reforms was coupled with a high inflation rate, and as a result disposable income has been shrinking and consumer demand in the domestic market has weakened.
Signs of improvement in early 2020

Despite a drop on the demand side, however, the Egyptian economy was showing significant signs of improvement at the start of this year. Egypt had a GNP growth rate of 5.6 percent in FY 2018/2019, unemployment stabilized at around 8 percent, while inflation was down to single digits and seemed to be under control. According to the Central Bank of Egypt (CBE), the annual consumer price inflation rate declined from 7.2 percent in January 2020 to 5.3 percent in February. The Egyptian pound (EGP) steadily gained strength against the American dollar in 2019 and was deemed one of the year's top performing currencies.

In addition, remittances from Egyptian expats working overseas reached $26.6 billion in 2019. This made Egypt the 5th largest recipient country in the world, according to the World Bank, and remittances are an important revenue stream for many Egyptians.

Last year also witnessed the revival of the tourism industry, a critical pillar of the economy. It is a source of significant employment and foreign currency, with revenues reaching $12.4 billion in fiscal year 2018/2019. This represents a rise from $3.93 billion in Q1 of FY2018/2019 to $4.19 billion in Q1 of FY 2019/2020.

But there are serious challenges on the horizon

While it is too early to gauge the total economic impact that COVID-19 will have on the global economy as well as on individual economies, there are certain areas in which Egypt is likely to face serious challenges.

The disruption of supply chains will negatively affect industries that depend on inputs from China and other foreign markets, thereby affecting production levels for the domestic market as well as for exports. The decline in international trade as a result of the disruption of supply chains will also have adverse effects on revenues from the Suez Canal, which reached $5.8 billion in 2019.
The oil-rich Gulf countries are struggling with the economic impact of COVID-19 given the decline in demand for oil, especially from China, as well as the recent and sharp fall in prices stemming from the Russia-Saudi Arabia dispute, with Brent trading for under $30/barrel as of late March. This will result in a tightening of economic policies in the Gulf states and may require wage cuts and layoffs among expatriate workers, which in turn will affect the remittances of Egyptian expats, who account for a high percentage of the workforce in the Gulf.

The tourism industry is unlikely to see a revival until next season in light of ongoing travel restrictions and the lingering psychological impact of health risks associated with international travel. The demand crunch both globally and domestically will spill over into recessionary trends that will affect domestic investments and employment.

In addition, in light of the global uncertainty around the current situation and the expanding role that governments will play in safeguarding their economies, countries such as Egypt might find it even more difficult to access the finance needed to support their economies and carry out their stimulus plans. Global financial institutions like the International Monetary Fund may not be able to handle the huge demands that are likely to arise as a result of this crisis given the sheer number of countries affected.

The need for government action

In anticipation of these challenges, the Egyptian government has been quick to introduce stimulus measures. The CBE announced on March 16 that it was cutting borrowing rates by 3 percentage points to stimulate industries and boost demand, while increasing credit limits for businesses to support working capital and payment of salaries. At the same time, with fear of dollarization and to ease expected pressures on the currency, public banks are offering new certificates of deposit at a rate of 15 percent for one year, which is only available online without any need for personal interaction.

Furthermore, the CBE has instructed all banks and lenders to provide a six-month grace period on all loans as an emergency tool to ease the burden on the population and the private sector. The government also announced the following measures: the allocation of EGP 100 billion (around $6.25 billion) to combat the virus; a reduction in the price of natural gas and electricity for industries; the immediate release of export subsidy arrears; and the provision of support for the tourism and real estate industries through banking finance initiatives.

As the world changes in the wake of the COVID-19 pandemic, Egypt has an opportunity to address some of the structural reforms in the economy by boosting the confidence of the domestic private sector, as well as moving at a faster pace to promote technological transformation, particularly in the financial and health care industries.

Based on what we are seeing globally, Egypt is likely to face some serious public health and economic challenges in the days ahead. It is important to act quickly and creatively to anticipate and mitigate them.

*The Writer is a non-resident scholar at MEI and CEO of EN Investment. He previously served as CEO of the Chemical Industries Holding Company and as Egypt's Principal Deputy Minister of Planning, Monitoring and Administrative Reform and Principal Deputy Minister of Investment. The views expressed in this article are his own.

**This article was originally published by the Middle East Institute in Washington DC. https://www.mei.edu/publications/what-d ... ts-economy



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Re: The Economic impact on Egypt of COVID-19

Post by crewmeal »

Newcastle - It will be the same world over. No country is immune from this virus and is/will have a serious impact on economies around the globe. The sad thing is Egypt has never really invested in the health of the country and this is now evident. I still can't believe that they're still building a new city outside Cairo at some horrendous cost. Where is the mentality in that? What I do admire is Countries like Kuwait and Oman who look after their own and provide free education, health care, utilites. If the top brass in Egypt did that in the past my feeling is that they wouldn't be in the mess they're in now.

We know that Trump expects the USA to get back to normal by Easter but he's only after one thing, money and doesn't care a damn about anything or anyone else. However there is talk that what Rishi Sunak is doing now will result in heavy tax rises when this is all over. It makes you wonder what that dreadful 'spreadsheet Phil' would have done to help the country.

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Re: The Economic impact on Egypt of COVID-19

Post by newcastle »

This epidemic will certainly expose whether what we’ve heard from the Egyptian government over the last few years .....in terms of the economy, health services etc......bears any relation to reality.

All Trump is interested in is being re- elected in November. If the US economy tanks, and he’s no longer able to crow about how great his presidency is for the US, and the world generally, then COVID-19 is not all bad news.

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Re: The Economic impact on Egypt of COVID-19

Post by Who2 »

I still can't believe that they're still building a new HS2.... 8)
"The Salvation of Mankind lies in making everything the responsibility of All"
Sophocles.

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Re: The Economic impact on Egypt of COVID-19

Post by crewmeal »

I still can't believe that they're still building a new HS2....
The authorities spent a fortune eviciting the protesters from the Warwickshire countryside the other day.

https://www.itv.com/news/central/2020-0 ... uidelines/

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Re: The Economic impact on Egypt of COVID-19

Post by A-Four »

Who2 wrote:
Sun Mar 29, 2020 10:19 am
I still can't believe that they're still building a new HS2.... 8)
What I cannot understand about HS2, is that new station they are building next to Moor Street, to travel north from there, they will have to tunnel under Corporation Street, and under that road that separates Rackham's on one side, and what was The old John Lewis building on the other. Then I suppose the tunnel coming out at the area that was once called Kennedy Gardens. (I wonder what happened to that old mural that was once there).

If HS1 is anything to go by, which I travel on quite often, the ticket price is much more expensive than using either of the two slower routes from London, - take note people of Birmingham, before you kiss Virgin trains goodbye.

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