Egyptian policy-makers are wishing for favourable winds as they press ahead with economic reform efforts in 2019, report Niveen Wahish and Sherine Abdel-Razek
Tens of infrastructure projects are helping the economy grow
Egypt’s economic reform programme is now in its third year, and it was in late 2016 that it all began with floating the pound, imposing new taxes and slashing subsidies. The government’s programme is backed by a three-year $12 billion extended fund facility from the International Monetary Fund (IMF), of which it has received $8 billion. Early last month, the IMF carried out its fourth review and approved the disbursal of another $2 billion scheduled for early 2019.
Over the last two years, Egypt has passed successive IMF checks with a pat on the back. “The Egyptian economy has continued to perform well, despite less favourable global conditions, supported by the authorities’ strong implementation of the reform programme,” an IMF press release said following the fourth review.
Finance Ministry figures show that Egypt’s gross domestic product (GDP) grew by 5.3 per cent in the first nine months of the 2017-18 fiscal year compared to 3.9 per cent during the
same period last year. Tourism, exports and natural gas were major contributors to the growth, spurred by public and private consumption at a lower rate than foreign direct investment.
Going forward into 2019, the government’s calculations are optimistic. The Finance Ministry sees the economy growing at 6.5 per cent in the 2019-20 fiscal year. The ministry’s 2019-20 budget guidelines forecast GDP growth at 6.9 per cent in 2020-21 and 7.3 per cent in 2021-22.
Other positive figures were rolled out this year. The Central Bank of Egypt (CBE) showed an overall surplus of $12.8 billion in the country’s balance of payments and a retreat in
the current account deficit by 58.6 per cent during the 2017-2018 fiscal year. This was made possible due to improved tourism revenues, which rose to $7.4 billion from $1.6 billion.
Suez Canal receipts increased by 15.4 per cent, to register $5.7 billion against $4.9 billion last year. Remittances from abroad reached $26.5 billion, an increase of $4.6 billion over last year. These contributed to propping up the country’s hard currency reserves, which reached $44.5 billion at the end of November 2018, covering 8.5 months of imports. They had reached a low of $13.4 billion at the end of March 2013, covering only 3.5 months of imports.
The unemployment rate also fell to 9.9 per cent in the second quarter of 2018, compared to 12 per cent a year ago. The number of employed reached 23 million during the same period, compared to 25.7 million a year ago.
This generally positive performance has triggered improved credit ratings for the Egyptian economy. In November, ratings agency Standard & Poor’s (S&P) affirmed Egypt’s sovereign credit rating at B and its outlook at stable on the back of a “more competitive exchange rate, improving macro fundamentals and rising domestic gas production.”
It had upgraded its rating for Egypt from B- to B in May. S&P said it might raise the rating to positive if the country’s economic growth exceeded its expectations or if it reduced its financing needs or government debt.
In August credit ratings agency Fitch affirmed Egypt’s long-term credit rating at B with a positive outlook. Ratings agency Moody’s upgraded its outlook on Egypt to positive, reaffirming its long-term issuer rating at B3. It also upgraded its outlook to positive from stable on the back of what it said were improvements in the economic and business environment in the country.
source: Capital Economics
INFRASTRUCTURE FOR GROWTH: Major infrastructure projects continued in 2018 in different parts of the country, propelling growth and creating jobs.
The government continued work on expanding and upgrading the road network, power stations and urban developments. Among them were the development projects in Galala located between Ain Al-Sokhna and Zaafarana on the Red Sea. These aim to create a new urban area including residential, commercial, educational and tourism facilities.
The latest of these projects were inaugurated in mid-December by President Abdel-Fattah Al-Sisi. They included a wastewater treatment plant in Qalioubiya and several housing projects aimed at combating informal settlements.
More than 150,000 direct and indirect job opportunities in different fields are said to have been created by the projects. And more than 100 Egyptian companies and 10 engineering consultancy offices are involved. The area also includes a marble factory and the King Abdullah bin Abdel-Aziz University, a new university development.
This year also saw the inauguration of four power generation projects worth some $7.2 billion. They include three electricity plants built by German conglomerate Siemens in Beni Sweif, Borollos and the New Administrative Capital, with a total capacity of 14.4 Gigawatts (GW).
In a bid to increase the country’s renewable sources of energy, a wind power plant at Gabal Al-Zeit on the Red Sea consisting of three interlinked projects producing 580 Megawatts (ME) of power from 390 wind turbines was also inaugurated this year. Egypt has targeted 20 per cent of all electricity consumption to be generated from renewable sources by 2022.
The new plants will boost power production by 50 per cent and have a combined capacity eight times that of the Aswan High Dam, Presidential Spokesman Bassam Radi said.
“The projects will transform Egypt into a regional power hub and allow us to export electricity to neighbouring countries,” he added. Excess electricity generated by the plants will help supply planned interconnection projects with Sudan, Cyprus, Greece and Saudi Arabia, added Electricity Ministry Spokesman Ayman Hamza.
The first phase of the new Alamein City on the North Coast was also inaugurated this year. It will eventually cover 48,000 feddans and cost LE2 billion and is part of a series of ambitious urban development projects that will accommodate Egypt’s growing population while offering job opportunities and acting as engines of economic growth.
“The construction of these fourth-generation cities is not a luxury. They have become an urgent need, both in tackling population growth and in upping Egypt’s profile on the global investment map,” President Abdel-Fattah Al-Sisi said at the inauguration. Other cities being developed include the New Rafah City in Sinai, built on 535 feddans and containing 10,000 housing units, and Salam City, to be constructed on 16,415 feddans east of Port Said.
“Alamein City and other similar projects have already successfully absorbed workers returning from Libya and other countries,” the president said.