Egypt has launched a stimulus package to curb the impact of the Covid-19 outbreak on people's living standards and the economy. The package, announced by the Central Bank of Egypt (CBE), was kick-started by a reduction of three per cent on key interest rates to cut the cost of getting credit and energise the economy. The CBE's overnight deposit rate fell to 9.25 per cent from 12.15 per cent, and its lending rate is now 10.25 per cent. “Reducing interest rates aims to encourage consumption and investment, these being the main driving engines for the economy's growth,” said Hani Genena, head of research at Prime Securities. His words echoed a statement by Fitch Ratings, a US credit-rating agency, which said that the decrease in interest rates was anticipated to increase people's purchasing power and accelerate private-sector investment. This would help to make up for the losses incurred as a result of the paralysis that has hit world economies on the back of the virus outbreak, the agency noted. Fitch has forecast Egypt's economy to achieve economic growth rates of 5.4 per cent in the current fiscal year and 5.8 per cent in the next. This week's moves by the CBE were followed by a reduction in discount rates levied on the beneficiaries of its three financing initiatives for the industrial, tourism, and real-estate sectors to eight per cent, down from 10 per cent. The reduction in the interest rate will be applied retroactively on those who stand to benefit from it. Last year, the CBE introduced a LE50 billion mortgage finance programme for people seeking to buy homes costing up to LE2.5 million. It also upped the package of loans available to tourism companies to upgrade the tourism sector to LE50 billion, and earlier this year it started a LE100 billion programme to finance companies with annual sales of LE1 billion. The interest rate on the loans offered by the three initiatives stood at 10 per and has now been reduced to eight per cent. “These pre-emptive measures aim to hedge these sectors against the negative financial repercussions of the Covid-19 outbreak,” Genena added. Egypt's two largest state-owned banks, the National Bank of Egypt and Banque Misr, last week started offering new one-year saving certificates at an interest rate of 15 per cent. The certificates aim at curbing dollarisation and giving an alternative for those depending on interest rates on deposits as a source of income and were thus expected to lose money after the three per cent reduction in interest rates, Genena said. “This explains why the demand for the certificates has been high,” he said. Atef Al-Maghrabi, deputy chairman of Banque Misr, said the move aimed to protect liquidity and shield Egypt's economy from the negative impacts of the spread of the virus. He added that the two banks shared the vision that the deterioration in Egypt's stock exchange would be temporary and was the result of the coronavirus epidemic that has caused world exchanges to plummet. The ceilings on daily cash withdrawals from ATMs and the value of transactions through mobile banking have been increased, in addition to the suspension of the CBE's December regulations related to checking the creditworthiness of suppliers to clients acquiring loans. The government has also adopted a series of measures to boost the stock exchange, prime among which is the CBE's allocating LE20 billion to support it. The National Bank of Egypt and Banque Misr have each pumped LE1.5 billion into the exchange. The introduction of a capital gains tax on transactions has been postponed to early 2022. The stamp tax on transactions for both foreigners and residents has been slashed. The moves come after the market's main index, the EGX30, lost almost 20 per cent of its value since the beginning of March on the back of fears of the spread of the coronavirus. The Ministry of Finance said the measures aimed to support the country's economic activities, breathe life into the stock exchange, and encourage local and foreign investments in Egypt's financial market. Banking expert Hani Abul-Fotouh believes the measures to be swift and positive and will boost the exchange and Egypt's economy in general to be able to withstand the repercussions of the coronavirus. He said the measures the government adopted last week to support the exchange were good ones, but that they had come late. Egypt's stock exchange had been waiting for such incentives for some time, he said. In addition to these measures, President Abdel-Fattah al-Sisi announced on Sunday a two-year freeze on the agricultural land law and added the government would shoulder the cost of five bonuses for pensioners that will cost the budget LE35 billion in the current year and LE7 billion annually over the coming years. On Monday, the Ministry of Finance decided to allocate LE1 billion in March and April to pay the dues of exporters to encourage investments and local industry.
*A version of this article appears in print in the 26 March, 2020 edition of Al-Ahram Weekly
