The economic crunch Egypt witnessed following the 25 January Revolution in 2011 affected people's lives and came close to threatening the state itself. Macroeconomic indicators recorded low growth rates and a rise in inflation and unemployment. Foreign investors withdrew from the country, and domestic investments came to a halt. The state budget did not fare well, with an increase in spending and a reduction in revenues. The deficit and public debt skyrocketed, and the Central Bank of Egypt (CBE) reserves plummeted to unprecedented levels. Fortunately, Egypt's economic situation then radically changed. The state's constitutional institutions were rebuilt following the 30 June Revolution in 2013, particularly after Abdel-Fattah Al-Sisi became president and in the wake of his dedicated endeavours to implement an economic reform programme. All the macroeconomic indicators saw an opposite trend to what had happened after 2011, and the improvements in Egypt's economy were commended by global financial and investment institutions. The economic reforms have now become Egypt's safety network to combat the Covid-19 pandemic that has hit the world economy hard. Thanks to these reforms, the International Monetary Fund (IMF) has forecast that Egypt's economy will grow by two per cent in 2020, even amid the pandemic and the world economy falling by three per cent. In the first half of 2019, Egypt's economic growth rose to 5.6 per cent, up from 5.3 per cent in 2018 and 2.9 per cent in 2014 when president Al-Sisi took over. The 2019 figures are the highest since 2008 when Egypt's economy was free of restrictions and there were no challenges to hinder its progress, unlike the case at present when the world is mired in uncertainty and there are developing tensions between the US and China. By the end of 2019 and the beginning of 2020, inflation rates had regressed, reaching 13.9 per cent throughout 2019, down from an all-time high of 23 per cent in 2017 when the Egyptian pound was floated. The retreat in inflation rates was mainly driven by a drop in the prices of basic food items, particularly vegetables, fruit, meat and poultry, and healthcare services. This group of items and services constitutes more than 60 per cent of Egyptian people's spending. This is the reason the public felt the reduction in these items' prices during the first quarter of 2020 before the coronavirus pandemic struck, reflecting the prices of food commodities worldwide. Unemployment recorded 13.4 per cent in 2014, its highest level since 1990. However, in 2019, employment stood at 8.6 per cent, thanks to the state's adoption of mega-projects in the construction and transport sectors. The state implemented a multi-trillion-pound programme to build a set of new cities, the most prominent of which are the fourth-generation cities of the New Administrative Capital and New Alamein. These new cities serve the investment and development targets of the country and will help to transform it into a regional financial hub connecting Africa with the rest of the world. The state also embarked on a national project for roads to a length of 4,500 km at a cost of more than LE75 billion. This project has resulted in taking Egypt to 28th position, up from 118th, in the five-year global index of the quality of roads. Other indicators in the budget also showed an improved performance. Revenues were higher than spending, and the public budget achieved a primary surplus for three consecutive years starting in fiscal year 2017-18. However, public debt rose, although it remains within the safety level and is low when compared with GDP. Moreover, Egypt is increasingly able to pay off its debts in the light of the rise in foreign reserves and its elevated credit rating, coupled with the positive outlook for Egypt's economy on the part of international credit-rating institutions. As far as the performance of Egypt's budget is concerned, the country achieved a primary surplus in fiscal year 2017-18 for the first time since the 1990s and worth LE4.8 billion. Egypt maintained that upward trend in the following two years, recording LE103 billion in fiscal year 2018-19 and LE123.9 billion in fiscal year 2019-20. Egypt would have maintained the same trend if it had not been for the coronavirus pandemic. Public debt continued to rise, recording LE3.86 trillion domestically and $112.6 billion in foreign currency in December 2019. The public debt is high due to several reasons, including the huge spending on the part of the state that has been necessary to push growth rates forward and shake off the slowdown the Egyptian economy witnessed between the two revolutions.
SOUND FUNDAMENTALS: There are, nevertheless, reassuring indicators. The majority of the debt is domestic and in the national currency. It is also low, as a percentage, when compared to GDP, recording 78.4 per cent of GDP in late 2019, after registering 90.2 per cent at the end of June 2019. In addition, Egypt's credit rating is high and is maintaining a stable outlook. The government's strategy of transforming the bigger portion of the public debt to medium- and long-term debt, and not short-term debt, has also succeeded. The government has also moved the debt from investment bodies to international organisations that provide loans with more facilities and lower interest rates. These factors combined render the public debt more sustainable and lower its service costs. The main indicators show the achievements of the banking sector, such as the appreciation of the pound against the dollar to reach about LE16.2 per dollar in June this year, down from LE18.7 per dollar in January 2017 after the floatation of the pound. The pound remained high against the dollar for 14 months from January 2019 to February 2020, when the dollar recorded its lowest rate at LE15.6. However, reversing this trend has been the increasing demand for the dollar owing to the Covid-19 and resulting unexpected spending from the reserves, in addition to the withdrawal of a large portion of portfolios from investing in Egyptian debt instruments, driven by uncertainty in the world economy. The pound is expected to appreciate again against the dollar following the end of the pandemic, with increasing dollar flows from sources that have been halted due to precautionary measures against the virus. The depreciation of the dollar that was earlier seen was coupled with a reduction in interest rates driven by lower inflation, a decreased exchange rate, and a hike in foreign reserves. For the year up until January 2018, the monthly average of lending was level at 19.9 per cent. Since then, however, it has plummeted to record 11.8 per cent in April 2020, the lowest percentage since the floatation of the pound in November 2016. Lower interest rates facilitate local and foreign investment, create more job opportunities, reduce employment and increase production, all of which push growth rates upwards. Lower rates also reduce the servicing costs of public debt. For these reasons, the appreciation of the pound, together with lower interest rates, can be seen as reassurance regarding the rise in public debt. The CBE's foreign reserves fell rapidly following the 2011 Revolution, reaching $14.9 billion in June 2013 and representing only enough for three months of imports of basic commodities. The foreign reserves had recorded $35.2 billion in June 2010, and when Al-Sisi became president in June 2014 they had settled at $16.6 billion. In January 2020, the foreign reserves stood at $45.5 billion, securing 8.6 months of basic imports. The coronavirus pressures, however, lowered the reserves to $37 billion in April, representing seven months of imports. Egypt has thus withstood the potentially devastating repercussions of the coronavirus pandemic. If it had not been for its strong economy, the public would have been queueing in front of complexes selling subsidised commodities. Instead, the government succeeded in making available all food items from the beginning of the crisis, unlike in some developed countries. This is testimony to the economic successes of president Al-Sisi, who has managed to restructure the Egyptian economy and put it on the right track for growth, enabling it to stand strong in the face of crises. Such successes have been one of the reasons why there are such great expectations for the Egyptian economy. Before the Covid-19 pandemic it was expected to reach the 10th place globally by 2035, according to a number of economic institutions, among them the US financial service Bloomberg. Despite the pandemic, Egypt's economy is still going upward. However, much work remains to be done, foremost among which is regulating the framework for private-sector activity and foreign investments. The achievements of the past six years indicate that improvements at this pace will take Egypt over the next six years into the group of the world's 20 strongest economies. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ The writer is a senior researcher at the Egyptian Centre for Straregic Studies.
*A version of this article appears in print in the 11 June, 2020 edition of Al-Ahram Weekly
