At the beginning of 2020, Egypt’s economy was booming at an impressive pace; a comprehensive economic reform program, backed by a USD 12 billion dollar IMF loan, had catapulted the economy into being the most attractive country for foreign direct investment in MENA by the end of 2019.
Foreign reserves peaked at USD 45.2 billion; remittances reached USD 26.8 billion; and tourism brought in a historically high revenue of USD 13 billion.
Following the first stages of the monetary reform program in November 2011, Egypt’s GDP took a hit, reaching USD235.4 billion in 2017 from a high of USD332.9 billion in 2016, however it has since rebounded to USD303.2 billion in 2019.
Moreover, Egypt’s GDP growth accelerated from 4.2% in 2016/17 to 5.6% in 2018/19, and effectively rebalanced after having been largely driven by consumption, contributions of net exports and investments had started taking the driver’s seat, leading the current account deficit to narrow from 6.1% of GDP in 2016/17 to 3.6% in 2018/19.
The Egyptian pound had stabilized at 15.9 EGP/USD after reaching a high of 19.1 EGP/USD during the months following the devaluation. Consequently, inflation had also begun to decline, reaching 5.3% in February 2020, after peaking at 33% in July 2017.
In March 2020, as COVID-19 took over the world, a nation-wide lockdown and suspension of flights, brought Egypt’s economy came to a stand-still, costing it billions of dollars monthly on lost tourism, Suez canal and productivity revenues, among others.
Anticipated megaprojects including the relocation to the new administrative capital, as well as the opening of the Grand Egyptian Museum, have been postponed to 2021.
And unemployment that had recorded just above 12% in July 2017, before improving to 7.7% in January 2020, has been pushed up again by the pandemic to 9.6% in July 2020.
The pandemic has stressed on longstanding structural vulnerabilities in Egypt’s economy, with its reliance on tourism, Suez Canal, and remittances as sources of foreign currency making it particularly vulnerable to global market trends.
Egypt’s poorest were hit the hardest in the wake of the pandemic, and with up to 50% of non-agricultural employment being informal, the lockdown brought about severe struggles for those workers with no safety nets. In a recent CAPMAS study, 55.7% of surveyed households reported less working days/ hours due to the pandemic; 26.2% reported having become unemployed; and 73.5% reported a decline in income.
Female workers also suffered disproportionately more than others, with 2.3 million women leaving the labor force after having lost their ability or willingness to look for a job.
The Egyptian government, fearing to lose the fruits of a tough 3-year reform journey, quickly came forward with a EGP 100 billion relief program to confront the economic fallout caused by the pandemic, which was backed by an unconditional USD2.77 IMF loan under the Rapid Financing Instrument program, and further foreign borrowing included USD 5 billion Eurobond issuance in May, USD2 billion financing package from UAE banks secured in August, and USD750 million Green Bond issuance in September.
The Egyptian Central Bank also moved quickly, slashing interest rates by 3%, providing subsidized loans to affected sectors, removing ATM withdrawal fees, exempting late loan payments from fines, and encouraging credit lines for companies to finance salaries and capital.
The Egyptian government announced a number of programs to support informal workers, however only reaching a portion, leaving millions more vulnerable to the fallout of the pandemic.
Despite economic growth rate declining to a forecasted 3.6% in 2020, Egypt stands as the only MENA country projected to have a positive growth rate this year.
The resumption of economic activity with the gradual phase out of containment measures have also helped to improve unemployment.
And continued execution of mega projects have helped cushion growth, with official unemployment rate decreasing from 9.6% in June 2020 to 7.3% in September due to the resumption of economic activity with the gradual phase-out of lockdown measures.
Egypt’s foreign reserves are once again rebounding, reaching USD39.2 billion in October 2020 after dropping by USD9.5 billion since March. Also, capital outflows started to reverse, with portfolio inflows totaling USD11.3 billion until the end of October to reach a total of USD 21.7 billion.
What has Egypt done right and what could be done better in the era of the pandemic? How will Egypt co-exist with the global pandemic this coming year?
Stay tuned for our exclusive coverage on the way forward for Egypt’s economy – based on insights and opinions of the renowned experts who spoke at the Business Forward annual event on December 14.