CAIRO, Sept 5, 2018 – Amid a brewing storm for emerging markets, Finance Minister Mohamed Maeet said on Wednesday that Egypt could weather what had thrown many others into crisis – as long as the underlying causes don't get any worse. Speaking to CNBC's Hadley Gamble in Cairo, Minister Maeet discussed what the current market turmoil meant for the Middle Eastern country of 100 million. "It is worrying; however, we are able until now to absorb these negative effects. Egypt's economy has sources to address this. However, I have to be very honest – up to a limit," Minister Maaet said. "So hopefully what is happening will be corrected and will move into a stable position, because yes we are absorbing all these shocks – oil prices, emerging market problems, increasing interest rates — but if they continue like that, it will be a problem for us," he told the CNBC. Investors have been stepping away from emerging markets on the back of rising global interest rates and a strengthening dollar, which have made the record-high stock of dollar-denominated emerging market debt significantly more painful to pay off. Several major emerging economies, including Turkey, Argentina and Indonesia, are seeing their currencies hit record lows, while even India and China are seeing asset values slip amid growing trade war fears. The MSCI emerging markets index is down nearly 9 per cent year-to-date. Minister Maeet's comments come as Egypt has reported its highest economic growth in a decade in July, at 5.3 per cent for the 2017-2018 Fiscal Year (FY) compared to 4.2 per cent the previous year. The government aims to hit 7 per cent growth by 2022, an aspiration bolstered by the International Monetary Fund's (IMF) forecast of 6 per cent growth in the near-term – the highest in North Africa – and a reduction in inflation and unemployment of 7 per cent by 2022. Egypt's lofty macro figures stem from a number of IMF-imposed structural reforms implemented by the Cairo government since late 2016, alongside a $12 billion loan from the international lender. Egypt floated its currency, began reducing subsidies and raising taxes, and enacted a series of investment reforms – including lowering taxes and facilitating bureaucratic processes for international companies – boosting foreign investor confidence. The private sector has already reaped benefits, with Egypt's benchmark EGX30 index up 38.5 per cent since December 2016. The finance minister held that these reforms, though exacting, are necessary. "Our country is going through a very, very difficult situation. We had to make this painful reform, which affected it negatively," Minister Maeet said. "However, the outcome of this reform... started to give positive signs." Indeed, ratings agency Moody's recently upgraded Egypt from stable to positive, ranked as 'B3,' its best since 2011. Unemployment has also come down, and inflation eased to 13.5 per cent in July, a major improvement from a record 34.2 percent just one year prior. However, some economists see a debt crisis in the making. But, Minister Maeet expressed confidence that the debt load would be reduced. "We are recognising that we have a high level of debt and we have to reduce it," he said, adding that the government would introduce policies in the coming weeks designed to reduce the level of debt. These are to include encouraging further structural reform, establishing internal and external borrowing targets, and continuing to pursue growth, Minister Maeet said. "We need our economy to grow, because with our economy growing, creating jobs, creating more revenue, that means our revenue growth is much faster than our expenditure growth which can also help us reduce the level of borrowing." New sources of revenue, such as recently discovered gas reserves attracting the interest of multinationals like BP, Russia's Rosneft and Italy's ENI, should help in this direction, as will a recent rebound in Egypt's tourism numbers. Tourism, a vital source of hard currency and local jobs, is now up 30 per cent from last year.
