2 minutes with Mohamed Abu Basha: Private sector may be Egypt’s savior amid global changes

The best thing our government can do is to adhere to its commitment to the private sector because that will propel growth (Photo courtesy of ECES)

The Egyptian Center for Economic Studies (ECES) hosted a discussion on the impact of regional developments on Egypt, during which director and head of analysis at EFG Hermes Mohamed Abu Basha discussed his take on what Egypt can do to maintain its growth amid global changes.

What are the main factors that have an impact on Egypt’s economy?
In the past year and a half, the global economic cycle entered a new phase. The US Federal Reserve Bank is raising interest rates which is expected to persist in the coming period and this naturally has many implications. In the past 50 years, this has resulted in the migration of capital from emerging economies to developed economies.

The second factor is the price of oil – this has a massive impact on Egypt because of its local energy-price liberalization program. In the past seven months, oil prices have been on the rise globally and this impacts the economic situation. The direct impact these factors have on Egypt in the coming year and a half is that we were about to enter a phase of easing economic policies; however, this has stopped due to these global changes.

In light of global changes, what does Egypt have to deal with?
Egypt expected that investments of the private sector will increase in parallel with the interest rates going down. Currently, this has to wait because interest rates may drop by the end of 2019. There was a plan to ease policies for the private sector and investments, which may also be postponed. The budget deficit today is facing the high interest rates and oil prices. The rise in oil prices has the highest impact on Egypt because according to the country’s agreement with the International Monetary Fund (IMF), it has to liberalize its energy prices by mid-2019. Only five months ago, oil prices stood between $55 and $60 and today, they surpassed $80. This will impact the inflation, which is why we are not expecting to see any alleviation in interest rates from the Central Bank of Egypt (CBE) before the end of 2019.

Egypt has witnessed a very high inflation rate over the past two years and a half. The government is unfortunate. Just as it was about to lower the interest rate and ease policies, these global changes occurred and that will impact the growth rate in the coming period.

What can Egypt do amid these changes?
The best thing our government can do is to adhere to its commitment to the private sector because that will propel growth. There are a lot of things the government can do that are not related to the interest rates, but that have to do with easing policies and tax laws that can revitalize the private sector in a great way.

Eventually, interest rates will go down – we may disagree on when it will happen exactly, but the interest rates do not decide whether investments will occur or not. They may have an effect in the very short-term. However, in the medium- and long-term, there are other indicators. In light of the high prices due to global change, we need to see another level of easing policies.

Over the past two years and a half, the government has been working on macro stabilization, implementing multiple measures. What we need now is another plan for the other part of our reform; we need the same to be done to ensure sustainability and understand how the government is planning on growing the economy in the next 5-10 years.

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