The National Bank of Kuwait (NBK) has stated that the Egyptian economy’s performance promises encouraging future prospects, and that the worst repercussions of the novel coronavirus (COVID-19) pandemic have ended.
In a report, the bank said that despite the pandemic, preliminary figures revealed that Egypt’s real GDP grew by 3.6% in fiscal year (FY) 2019/20, compared to 5.6% in FY 2018/19.
He added that the closures applied to contain the outbreak led to a decline of 1.7% in the second quarter (Q2) of 2020, compared to 5% in Q1 of 2020. Egypt also saw an increase in its unemployment rate, to 9.6% in Q2 of 2020, compared to 7.7% in Q1.
NBK confirmed that the country’s main economic indicators are still showing a gradual recovery, which confirms that the worst economic repercussions of the pandemic may have ended.
It indicated that the key PMI had seen an upward trend, rising to 51.4 in October, approaching a six-year high, compared to 50.4 in September. This came on the back of Egypt’s key PMI averaging 49.8 and 38.3 in Q2 and Q3 of 2020, respectively.
The latest index readings also indicate that conditions will continue to improve in Q4 of 2020.
According to NBK, another indicator is the decrease in the unemployment rate to 7.3% in Q3 of 2020, which reflects the return of commercial activities to their usual levels. The improvement in unemployment comes in light of the gradual easing of precautionary measures from July.
It is expected that growth will improve as of the first half (H1) of next year, against the backdrop of hopes that vaccines against the coronavirus will be launched by the end of 2020.
The bank also expects that the Egyptian economy will grow to about 2.5% in FY 2020/21, before recovering strongly to about 5% in the medium term. This is thanks to the government’s commitment to economic reforms, and the continued support of the International Monetary Fund (IMF).
The NBK noted that Egypt has continued controlling public finances by implementing a set of fiscal measures, including restructuring its tax system, This has mainly occurred through the expansion in the country’s tax base and a reformation of the subsidy structure.
As a result, Egypt’s primary surplus has reached 1.8% of GDP by the end of last June. The level of the country’s fiscal deficit reached about 7.9% of GDP, down from 8.2% of GDP in FY 2018/19, despite the impact of the pandemic on public finances in H1 of 2020.
NBK said that the ratio of public debt to GDP reached 87% in FY 2019/20, compared to 90.4% and 108% in the two previous fiscal years, respectively. The Egyptian government aims to reduce its budget deficit to levels reaching 7.5%, while achieving a primary surplus target of 0.5% during FY 2020/21.
It added that the financial results, from July to the end of October 2020, showed that Egypt’s budget recorded a total deficit of about 2.6% of GDP. This came against the backdrop of an 18% increase in revenues on an annual basis, with yearly tax revenues increasing by 13.4%, which is one of the positive indicators for FY 2020/21.
Furthermore, there has been a continued improvement in foreign reserves for the fifth consecutive month. This has been supported by Egypt’s trend towards securing more financial buffers, and the acceleration of capital flows that it recently witnessed.
Reserves increased by $795m last October, reaching $39.2bn, compared to $36bn in May, when it retreated to its lowest levels during the peak of the pandemic.
The bank highlighted the significant decline in inflation rates, adding that since the beginning of the implementation of macroeconomic reforms in late 2016, urban inflation has taken a declining trend.
The decline makes Egypt one of the few countries to witness such a severe decline in the inflation rate, from about 33.1 % in July 2017, over a relatively short period.