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Challenges in Egypt’s economic recovery remain - Daily News Egypt

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Challenges in Egypt’s economic recovery remain

According to a report published by Atradius, growth rates are expected to remain subdued due to inflation as well as regional and global economic challenges

The currency crisis has been the main contributor to the rise in inflation as the government has consistently devalued the Egyptian pound in order to relieve pressure on foreign reserves, according to a report by the world’s largest credit insurer, Atradius.

By the end of the year inflation rates are expected to see a considerable rise to 11.9%, after remaining stable at 10.5% in 2015, and may increase further into 2017, with inflation predicted to rise to 12.2%

However, despite these efforts, inflation will be one of the main concerns of businesses in the coming years and international financial institutions will put pressure on the Egyptian government to rein in inflation.

The industrial outlook for 2016 is less optimistic, according to Atradius, with food products, energy, chemicals, and pharmaceuticals downgraded from a positive forecast to a fair or stable outlook.

The electronics and the information communication sectors continue to remain weak with credit risks and long-term growth being downgraded due to expensive imports. The paper industry also continues to suffer from an inability to import needed materials.

The export of hard goods, while not factoring in service exports, has taken the greatest hit but are expected to recover by 2017.

The currency crisis affected companies’ ability to import energy, while at the same time all natural gas and petroleum products were redirected towards domestic consumption in order to rein in rolling blackouts. As a result, in 2014-2015, exports contracted by 12%.

However, as foreign reserves will remain stable, exports are expected to begin their recovery by the end of 2016 with a 2.2% growth rate. With the development of the Zohr gas field expected to begin in 2017, industrial exports are expected to experience a growth rate of 8.1% by the end of 2017.

However, the expected increase in exports will almost be canceled out entirely by increased servicing on foreign debt as public debt reached 91% of GDP. The amount that Egypt will pay to creditors will become a terrible burden for the government as it increases to 106% of the total earnings from exports by the end of 2016 and could increase to 120% by 2017, says Atradius.

As a result of weak government finances and high external debt servicing requirements, the Egyptian government will come under increasing pressure to gain access to financing. With the bottoming of oil prices and ambitious development plans, Egypt will not have access to as much Gulf finance.

This might result in the government seeking an IMF loan, which they have continuously resisted due to the obligation of implementing harsh reforms such as cutting social spending, which many Egyptians depend on for survival.

Increased regional instability and political crises keep the regions’ long-term outlook quite uncertain. While uncertainty has become a recurring theme in the health of the world economy since Brexit, no other region has investor concerns over security and stability more pronounced than the Middle East and North Africa.

However, according to the report, Egypt’s medium-term outlook is positive and the country is expected to make a slow recovery unless global or regional shocks negatively affect the country.

The report argues that emerging economies in general have come under increased pressure due to the slowdown in the world economic system, particularly oil and “misguided” US monetary policy, which has reversed capital flows to emerging economies and seen investors put their money in safe havens. One popular safe haven is the debt market, which has negative implications for emerging economies with large debt servicing requirements.


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