The International Monetary Fund (IMF) has maintained its growth forecast for Egypt, saying that it will be the only country in the Middle East and Central Asia Department (MCD) to experience positive economic growth this year.
The IMF said that all countries in the MCD region, except for Egypt, are expected to see negative growth in 2020, with a rebound to 2.2% growth in 2021.
The remarks were published in the organisation’s latest regional outlook report, released on Monday during the IMF and World Bank’s annual meetings.
The IMF expects the Egyptian economy to grow 3.5% and 2.8% in fiscal year (FY) 2019/20 and 2020/21, respectively. The Fund also expects the Egyptian economy will continue its positive growth over the next five years, before stabilising at around 5.6% in FY 2024/25.
The report added that weaknesses in Egypt’s growth during the second half (H2) of 2020 are reflected in lower projections for FY 2020/21, which started July 2020.
The Egyptian government’s reform programme, which was implemented between 2016 and 2019, has significantly contributed to improving the country’s general economic indicators, according to Jihad Azour, Director for the IMF’s MCD.
Azour’s remarks came during a virtual press conference upon the release of the MCD region outlook, as part of the IMF and World Bank’s annual meetings.
He said that Egypt has, in the last three years, introduced a number of reforms that have helped the country gradually reduce its final fiscal imbalances, whilst also improving the broad economic situation. At the same time, Egypt was able to strengthen its monetary stability, with a high level of reserves at the Central Bank of Egypt (CBE). In 2019, the country was able to reach growth levels of 5.5%.
“Of course the novel coronavirus (COVID-19) crisis had a severe impact on the Egyptian economy,” Azour said, “It affected several sectors, including the tourism trade and export industries.”
He also said that Egypt’s economy has suffered from a slowdown in remittances from Egyptians working abroad, due in no small part to the global health crisis. The slowdown in global trade activities, which has seen a decline of more than 5% this year, has also affected the local economy.
In response to the coronavirus, Azour said that the Egyptian government has reacted swiftly by introducing a certain number of measures to protect lives through social and medical measures. In addition, the government has also protected the livelihoods of its citizens through various programmes.
These came in addition to a number of stimulus programmes which were used to support the private sector, to reduce the impacts of the coronvirus on the Egyptian economy.
The Egyptian government has also gradually expanded the safety nets in place, to include more people through the Tkaful and Karama programmes. It additionally adopted a number of protective measures covering health and economics, particularly since the national economy is heavily reliant on tourism and exports. These have both been severely impacted by the pandemic.
The programmes and improvements implemented, both in the years immediately prior to and during the pandemic, have allowed the government to stand up to the pandemic’s first wave.
“The IMF contributed to supporting these efforts through two basic points, the first of which was the rapid finance facility of $2.8bn, paid in April this year,” Azour said, “This was followed by another programme in which $5.2bn was provided to support economic stability and boost the country’s monetary stability, whilst also providing support to Egypt as it continues its structural reform programme.”.
He noted that the IMF has provided Egypt with a total of $8bn in assistance during the course of the coronavirus pandemic.
“We’ve seen an improvement in the economic indicators and we expect growth to be better than expected, the balance sheet will see an initial surplus, and we’ve also seen a major decline in inflation,” Azour said, “However, there are challenges ahead. The first is to continue to defend countries against any additional wave of the pandemic, and the second is to boost stability, and, more importantly, to continue and deepen the structural reforms that contribute to unleashing growth and giving a bigger role to the private sector in the future.”
“Going forward, it’s important to maintain the pace of reform, and to accelerate the structural reforms to allow the private sector to be in the lead for the next economic recovery phase,” he recommended.
The report said that the MCD region’s economic activity took a hit, with its real GDP projected to fall by 4.1% in 2020, after growing by 1.4 % in 2019. The projected contraction for 2020 is 1.3 percentage points larger than that reported in the April 2020 Regional Economic Outlook: Middle East and Central Asia.
“Beyond 2020, countries in the region will likely continue to face a challenging outlook,” the report said, “For 2021, all countries in the region except Lebanon and Oman are projected to see positive growth, albeit subdued. For Middle East, North Africa, Afghanistan and Pakistan oil-producing (MENAPOI) and common country analysis (CCA) countries, the rebound in 2021 will be enough to return real GDP to its 2019 level, but well below the pre-crisis trend.”
Countries in the region responded swiftly and resolutely when the COVID-19 pandemic hit. Many of the emergency measures put in place include boosting health sectors to policies aimed at assisting households and businesses. Put together, these have, in turn, helped countries cope with the crisis’ immediate impact.
However, given the uncertainty ahead surrounding the pandemics trajectory, and the scale of the challenges it has created, countries in the region continue to face the difficult economic environment.
“For all exporters in the MENAPOI region, growth is now projected at -6.6% in 2020, reflecting the combined impact of the decline in oil prices, as well as production cuts and the lockdowns. MENAPOI countries that benefit from lower oil prices are mostly being offset by a hampered tourism trade and lower remittances with growth in 2020 projected at -1%,” Azour said.
He added, “For the Caucasus and Central Asia, a contraction of 2.1% is expected for 2020, driven by the region’s oil importers.”
The report noted that the MCD region’s countries have adopted supportive policies to contain the COVID-19 crisis. Despite this, the IMF growth revisions reflect a deeper than expected impact of lockdowns on mobility, in addition to weak global growth.
“Compared with other regions, the contraction in the MCD region is broadly in line with oil exporters and middle-income countries in sub-Saharan Africa, but nearly half that of Latin America and the Caribbean, reflecting the lower impact from COVID-19,” it added.
Unfortunately, the report showed that remittance inflows to the region saw declines ranging from 6% year-on-year (y-o-y), to more than 25% during H1 of 2020.
“Mirroring measures taken to tackle COVID-19 and the oil price shifts, fiscal accounts in several countries deteriorated during H1 of 2020, although less so than in other regions, reflecting smaller packages and expenditure reallocation,” the report said.
It added that the capital flows were highly volatile in March and April, with the MCD region seeing estimated outflows of $6bn to $8bn during this time. The report also mentioned that consumer demand took a hit on the back of weak tourism and remittance inflows, which are key income sources for the region.
The IMF said that the deteriorated trade, tourism and remittances, with confinement measures, continue to depress growth in MENAP’s oil importers, including Egypt, which is now projected at -1% for 2020, after an expansion of 2.8% in 2019.