EBRD explores ways to protect Egyptian economy from COVID-19 fallout

Bank receives several inquiries on its solidarity package details, says country deputy head

The European Bank for Reconstruction and Development (EBRD) discusses with several banks operating in Egypt the possible ways to help the Egyptian economy overcome the coronavirus (COVID-19) crisis, EBRD Deputy Head for Egypt Khalid Hamza told Daily News Egypt.
The EBRD is in contact with its clients in Egypt that need the bank's financial support.
"We're working with our clients on how to benefit from EBRD's solidarity package that was recently announced to help companies overcome COVID-19 negative impacts," Hamza said.
The EBRD, which invests in 38 emerging economies, has launched an emergency package of initial €1bn to support companies in the affected countries, the bank said last Wednesday, noting that more detailed economic forecasts for the EBRD regions will be issued at the end of the month.
"There is a huge interest of Egypt's private sector to benefit from EBRD's solidarity package. We received several inquiries on details of the package," he mentioned, asserting the EBRD's readiness to increase its support for companies upon their demands.
EBRD accelerates approval procedures of new funds
The EBRD is doing its best to ensure that its new funds will be approved quickly to help the private sector operate normally in this hard time, Hamza said. "Tourism sector and Egyptian remittances will be negatively impacted. We will continue our support to Egypt's small and medium enterprises (SMEs)."
The coronavirus pandemic will have a negative impact on different economies across the EBRD regions but recovery could be robust once the outbreak is contained, according to the bank's economists.
Supply and demand will be affected simultaneously by the coronavirus outbreak. The final economic impact will depend on the duration of the pandemic and on policy response of national authorities and governments in key export markets, the bank said.
Countries are being affected directly by public health measures put in place to fight the virus as well as by precautions taken by individuals. Containment efforts will lead to lower consumption of services, such as restaurants, recreation, and to some extent transportation. They will also negatively affect household consumption of goods. Households may also postpone some consumption due to uncertainty created by the pandemic.
The flow of remittances to some EBRD countries could drop significantly if emigrants lose their jobs or cannot travel.
SMEs may experience sharp decrease in revenues
As demand decreases, many firms, especially SMEs, may experience a sharp decline in revenues, tightening their liquidity. Overleveraged firms will record higher liquidity constraints, increasing the risk of bankruptcy.
This may be mitigated by banking sector, which could allow delayed payments, and depends on the health of this sector, as well as the crisis measures imposed by authorities.
Moreover, there will be indirect effects due to disruption of global supply chains, weaker foreign demand, lower oil and commodity prices, and wide regional decline in tourism and travel.
Some countries are already experiencing disruption in input supply due to temporary closure of Chinese factories, but this effect may not be large due to a limited exposure of most countries. Meanwhile, oil and commodity exporters are hit by lower Chinese demand and a fall in prices. Countries integrated into Italian supply chains are also being affected.
COVID-19 infects tourism and remittances globally
Global growth of tourist arrivals will be definitely lower than the 3-4% forecast before the COVID-19 crisis (United Nations World Tourism Organisation). The EBRD expects the economic impact to be particularly severe in Adriatic and Mediterranean countries, as well as the southern and eastern Mediterranean (SEMED) and the Caucasus, where tourism is a crucial contributor to GDP.
The flow of remittances could drop significantly if emigrants lose their jobs (global downturn) or cannot travel (flight and border restrictions). This would affect the balance of payment and consumption, particularly in some Central Asian countries and the Western Balkans.
In a more severe scenario of a prolonged crisis, several companies may resort to lay off employees. This will exacerbate the demand shock. This may especially affect those employed on temporary contracts. This effect could in fact be instantaneous for workers on zero-hour contracts or self-employed. In some countries, the prevalence of such forms of employment is very high.
Also, as global uncertainty increases due to the unknowns of the crisis, capital markets become more sensitive to certain country-specific vulnerabilities, as external financing becomes stricter.
As mentioned above, the ultimate impact of the crisis will depend on policies taken by authorities. For instance, monetary policy response in the Central and Eastern Europe region directly depends on the actions of the European Central Bank.
However, the monetary policy stimulation in Poland, Hungary, or Romania would face significant trade-offs, as inflation has been growing above targets. Monetary policy response will depend on the fiscal space of each country. In the current circumstances, the EBRD expects market access to be the only fiscal constraint to be reckoned with.