Ahram Online and Al Ahram Weekly (Excerpt, read on Egypt's structural reforms: riding out the coronavirus)
While the effect of the Covid-19 new wave on the local economy is still unknown, Al-Ahram Weekly looks back on how the structural reforms introduced since 2014 have helped Egypt weather the storm in 2020
No one expected it, and no economy was able to escape its repercussions. The coronavirus pandemic made 2020 one of the worst years for the world economy since the Great Depression, pushing advanced economies and emerging markets alike into recession.
While it was not left unscathed, the Egyptian economy’s relative resilience and limited losses from the pandemic have been praised by financial institutions and ratings agencies worldwide, including the International Monetary Fund (IMF) and World Bank and ratings agencies Fitch and Standard and Poor’s.
Thanks to a set of structural reforms it has been adopting since the end of 2016, including the devaluation of the currency, the elimination of energy subsidies, the containment of the public-sector wage bill, the introduction of a value-added tax (VAT), and the government’s heavy investment in infrastructure projects, Egypt has been one of the few economies worldwide able to deliver growth by year end.
That was despite the fact that the pandemic slowed growth from the expected 5.7 per cent of GDP to an actual 3.6 per cent in 2019-20 and a projected 3.5 per cent for the current fiscal year.
Other improved reform-induced indicators include Egypt’s primary budget balance, reflecting the difference between government expenses and revenues after deducting interest, switching to a surplus and reaching 1.9 per cent of GDP in 2018-19 and the overall budget deficit and government debt-to-GDP ratios declining to 8.1 and 90.2 per cent in 2018-19, respectively, compared to 10.9 and 108 per cent two years earlier.
Egypt recorded a budget deficit of 7.9 per cent of GDP in 2019/2020, compared to 8.2 per cent in 2018-2019. Finance Minister Mohamed Maait said last month that Egypt is on track to narrowing the budget deficit to reach 6.3 per cent in 2020-2021.
This came as state revenues headed south as the lockdown negatively affected the tax revenues, the tourism sector was hardly hit by the flights suspension and trade disruptions caused Suez canal revenues to drop. However, this was partly offset by the decline in the international oil prices which limited the government spending on subsidies by 77 per cent during the fiscal year.
Moreover, private investment recorded 74 per cent growth during 2018-19 following two years of contraction. It surpassed private investment for the first time since 2015-2016 thanks to private-sector involvement in gas and renewables like the Zohr field for natural gas and the Benban Solar Park.
Another buffer for the economy was Egypt’s ample foreign reserves, which reached $45 billion in February 2020, a level that has helped the country absorb the shocks of foreign portfolio outflows, covering debt repayments, and paying for imports in addition to the severe decline in tourism and export revenues due to Covid-19.
The government was able to rebuild Egypt’s reserves after they lost $10 billion between March and May to end the year at $39.2 billion.
The LE100 billion emergency response package the government allocated to deal with the pandemic also helped. It included different plans to support the most-affected sectors of the economy, such as tourism, aviation, and healthcare, and provided tax incentives and tax breaks for the private sector.
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