Egypt’s Economy Sees Good And Bad Results In The Wake Of 2020
Swift fiscal action and structural reform is helping Egypt in its recovery from the recent global challenges brought on by COVID-19.
As has been the case for many countries, the impact of the COVID-19 pandemic on the Arab Republic of Egypt has been significant. Egypt’s primary sources of foreign currency—specifically tourism—have faced pressure from the many disruptions caused by the pandemic. However, the adverse effects have been made less acute than projected due to swift fiscal and monetary relief policies, as well as structural reforms introduced in 2016 that have helped the North African country weather the storm.
Growth despite challenges
The IMF, which approved a $5.2 billion standby loan agreement for Egypt in June 2020, said in December that the country is expected to be one of just a few to have grown in 2020, expanding approximately 1.5%. It added that the economy showed “early signs of recovery” after a milder than anticipated contraction, pushing up Egypt’s real GDP outlook in the fiscal year 2020/21 to 2.8% from its 2% forecast in June. Egypt’s cabinet announced in March 2021 that the economy grew at 1.3% during the first half of the 2020/21 fiscal year, declining from 5.6% recorded during the same period the previous year. The third quarter is expected to grow 2.8%, and the fourth quarter 5.3%.
Also in March, credit ratings agency Fitch affirmed Egypt’s long-term foreign-currency issuer default rating at “B+” with a stable outlook. The outlook was supported by Egypt’s track record of fiscal and economic reforms, with the rating weighed down by fiscal deficit and weak governance. Meanwhile, ratings agency Moody’s kept Egypt’s credit rating at “B2” with a stable outlook, supported by “A3” economic strength along with its commitment to implementing reforms.
In an effort to alleviate the challenges caused by the global lockdowns, the Egyptian government announced stimulus packages worth $6.1 billion, which included
an increase in pensions by 14%, a consumer spending initiative worth $637 million, and an allocation of $318 million for the healthcare sector. The tourism sector alone was promised $3.2 billion, including a government guarantee of $191 million on lowinterest loans by the central bank for soft loans for the tourism industry. The central bank also approved a $6.4 billion pledge to cover lending at preferential rates for manufacturing, agriculture, and contracting loans, and it launched a stock-purchase program worth $1.3 billion.
Egypt’s poverty rate decreased for the first time in 20 years in the fiscal year 2019/20, according to Prime Minister Mostafa Madbouly, citing CAPMAS. The proportion of the population living below the poverty line has reportedly fallen to 29.7% over the past two fiscal years from 32.5%. Annual headline inflation is also slowing, reaching its lowest level since September 2020 to reach 4.3% in January 2021. In February 2021, headline inflation rose slightly to 4.4%.
Egypt has also remained the top destination for foreign direct investment (FDI) in Africa, despite FDI inflows falling 39% to $5.5 billion in 2020, according to UNCTAD’s most recent Investment Trends Monitor report.
Meanwhile, the effects of the pandemic on Suez Canal receipts and remittances were less harsh than expected. According to the Suez Canal Authority, revenues only fell 3% in 2020 to reach $5.6 billion, compared to $5.8 billion in 2019. Annual net tonnage reached more than 1.1 billion from 18,829 ships, making it the second-highest net tonnage figure in the canal’s history. Worker remittances, one of the most significant sources of foreign currency in Egypt, increased to $27.8 billion in the fiscal year 2019/20 from $25.1 billion the previous year.
Inevitable damage
According to Central Bank figures, foreign reserves rose to $40.2 billion in February 2021, increasing by $100 million from January. An acute rise of more than $840 million came in December 2020.
Egypt, however, could not avoid the devastating consequences of global lockdowns and grounded airplane fleets, which was devastating for its tourism sector— one of the country’s primary sources of foreign currency. According to the Ministry of Tourism and Antiquities, the number of tourists to Egypt fell to 3.6 million in 2020, down from the 13 million international tourist arrivals reported in 2019 in the World Tourism Barometer report by the UNWTO. The ministry also reported that average tourism revenues stood at $4 billion during the year. According to the World Bank, international tourism receipts stood at $14.3 billion in 2019.
Last year’s hotel occupancy rate forecasts in Cairo, Sharm El Sheikh, Hurghada, and Alexandria were at 27%, 23%, 24%, and 45%, respectively, according to Colliers International’s latest MENA report. However, Colliers expects to see a rebound in 2021, with forecasts at 43%, 43%, 48%, and 62%, respectively.
In the second quarter of 2020, Egypt’s unemployment rate reached a high of 9.6% due to the pandemic, compared to 7.5% reported during the same period in 2019. It reached 7.2% in the fourth quarter of last year, according to CAPMAS.
Egypt’s non-oil private sector activity is contracting but at a slower pace. According to IHS Markit purchasing managers’ index, Egypt’s Purchasing Managers’ Index posted 49.3 in February 2021, still below the 50 mark that differentiates expansion from contraction. The figure stood at 48.7 in January, in comparison. However, 40% of businesses said in January that they expect expansion throughout 2021.
Continuing signs of positivity
Egypt has made significant achievements recently regarding venture capital. According to a Partech report, the country is the top destination for venture capital in Africa in terms of the total number of equity deals, capturing 24% of the African market. Startups in Egypt made 86 deals, an increase of over 83% year-on-year, worth $269 million.
The Egyptian government has also made some significant policy decisions. The nation’s universal healthcare program will be implemented nationwide within 10 years instead of the previously announced 15, with the first phase covering Luxor, Aswan, Ismailia, Suez, and South Sinai by 2021.
Moreover, the government gave priority to protecting the environment. According to the Ministry of Planning and Economic Development, 100% of the government’s investment projects will go green within three years. Egypt had also led the issuance of the MENA region’s first sovereign green bond, offering $750 million for a five-year maturity. The issuance was nearly five times oversubscribed, which reflected strong investor confidence. The country will use the investment to finance eco-friendly projects.
It also introduced a green car incentive program, which aims to swap 250,000 cars that are more than 20 years old with cars that are powered by natural gas and petrol in the first phase. More incentives include loans on a 10-year term with a 3% declining interest rate. Moreover, owners of private vehicles can get up to 10% discount on a new vehicle, while taxi and microbus owners will be able to get 20% and 25%, with specific ceilings.