Al-Ahram Weekly, by HANY ABOU-EL-FOTOUH
Hany Abou El-Fotouh finds optimism in recently released data
Several international organisations and rating agencies have praised the progress made in the past two years in the Egyptian economy.
Two years ago, I was skeptical about the progress of the economic reform programme. I was not alone in this impression since the harsh measures that were taken left most Egyptians helpless in the face of soaring price hikes. Sadly, the grievances of average citizens were aggravated by the greed of merchants and weak controls over prices and markets.
The Egyptian economy has come a long way in the past eight years. Following the revolution in 2011, growth fell sharply to below two per cent, and unemployment jumped to over 10 per cent, one of the highest levels in 10 years. Subsequent governments decided not to tackle the main economic problems in order to dodge the discontent of the already unhappy population furious with government performance and inadequate living conditions. They preferred to take to several populist measures to pacify the discontented public. Such measures included spending more on subsidies and government employment and increasing wages. Thus, the fiscal deficit jumped to 8.6 per cent of gross domestic product (GDP), leading to an increase in inflation to 11 per cent. The external current account deficit increased to nearly $5 billion and the unemployment rate had risen to 12.9 per cent in 2015.
Successive governments continued to make unwise policy mistakes; the biggest was keeping the Egyptian pound stable. This resulted in the Central Bank of Egypt (CBE) losing over $20 billion of its foreign exchange reserves between December 2010 and May 2012. Although in the first half of the fiscal year 2010-2011 the growth rate reached 5.2 per cent, it declined to 4.2 per cent in the first quarter of 2011, then reached virtually zero growth in the last quarter of the fiscal year, resulting in an overall growth of only 1.8 per cent in that fiscal year.
On the back of these developments, the three major credit rating agencies — Moody’s Investors Service, Fitch Ratings and Standard & Poor’s — downgraded Egypt’s sovereign credit rating.
After the 30 June Revolution, President Abdel-Fattah Al-Sisi faced a big challenge: how to revive the economy to achieve sustained high economic growth of at least 6-7 per cent and reduce unemployment. This required the implementation of major economic and institutional reforms. It was expected that these reforms take time before yielding results.
In November 2016, the government, in collaboration with the International Monetary Fund (IMF), launched an economic reform program which aimed at restoring the economic stability of Egypt and paving the way for higher long-term growth. The government has carried out bold reforms since then. Among the tough economic measures were the liberalisation of the foreign exchange market and energy subsidy reforms.
Now, as the economic reform programme is nearing completion — June 2019 — the picture is totally different.
The economy grew at an accelerated pace in the second quarter of the fiscal year 2019. GDP now stands at 5.3 per cent and is projected to reach 5.8 per cent in 2020.
World Travel & Tourism Council (WTTC) revealed that the travel and tourism sector contributed 11.9 per cent of Egypt GDP during 2018 and is expected to grow a further 5.4 per cent in 2019. Furthermore, WTTC showed that tourism was responsible for 9.5 per cent of all Egypt’s employment, providing 2.5 million jobs.
The unemployment rate decreased to 8.90 per cent in the fourth quarter of 2018, the lowest level in nine years. It was as high as 12.40 per cent in 2013.
Foreign currency reserves have risen steadily, reaching $44.06 billion by the end of February 2019.
The Egyptian pound strengthened to its highest in over two years, boosted by the improvements in tourism, exports, substitution of natural gas imports with domestic production, Egyptian expat remittances, increased foreign investors’ appetite for Egyptian treasury bills and improving the balance of payments.
Over and above, international credit rating agencies have changed their views of the progress of the Egyptian economy. Fitch recently upgraded Egypt’s credit rating from B to B+. Fitch’s report says, “Egypt will continue to generate better economic outcomes beyond the IMF agreement.” Likewise, Moody’s Investors Service has upgraded Egypt’s credit outlook rating from “stable” to “positive” following the positive outcome of the “ambitious” economic reform programme, along with political stability which has led to structural improvements in Egypt’s fiscal and current account balances, with primary deficits dropping and debt beginning to shrink. As for Standard & Poor’s (S&P), it raised the global rankings of Egypt’s sovereign credit rating from B- to B in May 2018.
Nonetheless, the picture is not entirely rosy. The public debt stands at 98 per cent of GDP, which remains high though sustainable. Servicing the debt accounts for about 30 per cent of fiscal spending, almost 10 per cent of GDP.
The improvement in the economy should be reflected in the daily life of ordinary people. Only then will the average citizen have fully reaped the rewards of the economic reform programme.
The writer is CEO of Alraya Consulting.
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