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EGYPT
EGYPT
Indeed just like other countries in world, Egypt is also dealing with some basic issues with their
GDP growth. The Covid-19 left Egypt as vulnerable as rest of the world. Especially if we look at
the recent 4-5 years trend so GDP growth has faced many rapid fluctuations. The Covid-19
started to spread majorly in last quarter of 2019, and it showed its main effects in early months of
2020. First we look at the data of GDP growth between 2019-23.
Inflation rate
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16
If we look at the inflation term so, it
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defines the weighted average growth in
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prices of general usage commodities or
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we can say a growth in yearly CPI. The
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inflation in Egypt followed the GDP
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growth rated and remained aligned with
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it. Before Covid-19 the inflation stood at
almost between 8-10% annually. Then as 2
0
the pandemic prevailed, the average price 2019 2020 2021 2022 2023
growth declined and hit its at least lowest
of 5 years in end of 2020. We know the inflation in any economy not just indicated the increase
in price level, but it also indicated the level of economic activity in the country. Because as the
Economic activity increases the job opportunities for people increase, and as people get more
jobs so they get more in form of income, and as they get more money in form of income, do the
demand more. As supply in economy remains constant, so excessive demand in economy causes
inflationary pressure.
In Covid-19 times the inflation rate started facing downward due to less economic activity and
uncertainty in the economy. The closer of industries and lockdown managed the inflation rate
below its potential. Inflation rate tells that by what pace the Aggregate demand in the economy is
growing. So decline in the Aggregate demand leads to lower supply in the economy followed by
low production and ultimately leading to low inflation rate. As the pandemic ended so Egypt
economy showed once again an economic recovery. This recovery included the GDP growth.
The GDP growth was followed by higher and growing inflation rate.
Indeed post Covid-19 inflation was not best indicator of economic activity, because this inflation
also included the effect of demand pull inflation, which is usually not considered as long term
inflation, but is just due to excessive demand I market for a time spare. As economies opened
after the Covid-19, the people started to demand more goods and services, which created both
demand pull and cost push inflation. So the growth in inflation rate after covid seems bit
abnormal. Pre covid inflation rate was 9.15% and after recovery from pandemic the inflation rate
stood at 16.2%.
This inflation included both speculative and cost push inflation. If we compare the inflation rate
of Egypt with other MENA countries, so Egypt maintained its average inflation rate of 9.4%,
while MENA countries faced below 1% inflation rate, signaling for lowest economic activity
during covid. If we notice, so after recover from pandemic in 2022, in2023 the Egypt had to
sustain its inflation to support its economic recovery, but the projected inflation figures for future
show the effect of Russia Ukraine war which will slow down the economic activity.
Indeed inflation remained too high in Egypt as compare to other countries, but again inflation
rate works as accelerator for economic growth. The issue comes when this high inflation persists
for a long term. Indeed long term inflation is a bad sigh for an economy, because it keeps
devalue our purchasing power more than its growth. And in long run this persisting inflation can
result in long recession.
Budget deficit is a term explaining itself. It Govt: Budget deficit related to GDP
counts for the deficit from budget Govt: 0
2019 2020 2021 2022 2023
faces. If we explain it more so there are two -1
components for budget deficit or surplus.
-2
The first if Revenue for government (In
-3
form of Taxes), and second one is
Expenditures that government do (counted -4
as government expenditures). -5
-6
The term deficits shows when we lack in
the positive term. Here the taxes that -7
The Egypt being a net oil importer country can be highly effected by current oil price
fluctuations. Even in 2019 the Egyptian government said that a $1 increase in per barrel price of
oil will coat then 4 billion Egyptian pounds. This high uncertainty in international oil market can
hurt the Egyptian budget position more and more. The question is why this increase in price is an
issue for oil importing counties.
It’s because as one economy spends more amount on oil imports than previous, than it can spend
less amount on other projects and expenditures. So in case of Egypt the increase in prices will
make tough times for economy and can make looks its economic growth outlook problematic. As
the prices so up, so now the government has to keep more reserves for oil importing, Not only
this but if the oil prices go up, so the prices for energy production will also go up with it, which
in end creates the inflationary situation in the economy.
On the same time the Egyptian government has also removed the oil subsidies and on other side
prices are increasing, so final result will be a negative impact on fiscal levels of government. It
will make the fiscal deficit or called budget deficit to go up. This effect of high prices followed
by high inflation will make the central bank to opt for the tight monetary policy in present time
as well as future. If we look at this trend of increase and more fluctuations in the oil prices all
over the world, so many economists believe that this hike is more of due to geopolitical reasons
rather than the economic and market reasons. So in the last we can say that the fluctuations in oil
prices for Egypt are not good sign, because it will increase the fiscal deficit more and put
pressure on it.
CA deficit
0
2019 2020 2021 2022 2023
The current account deficit is a negative big -0.5
push in its value. First we need to -1
understand what is Current account. Mainly -1.5
-2
the current account of any country consists
-2.5
of two factors, the imports and exports. The
-3
positive value of current account shows the
-3.5
more value of exports as compare to imports -4
for an economy. -4.5
-5
Indeed there are other factors also included
into the current account, but for now there are only these two factors of most importance. So
current account deficit happens when a country imports more goods and services from the world
than it exports to the world.
So if we look at the data for the Egypt so it shows a looming trend for 5 years. Indeed for all
respective years the Egypt has remained the deficit facing country, which proves the statement
the Egypt is a net importer from the world. In pre covid time the deficit was stable neat to 3.5%
and as the world went into pandemic so Egypt gained much more of the budget deficits. Its
deficits moved up from negative 3.4 to negative 4.6.
This surge in current account deficit shows that the exports of Egypt fall in time of pandemic and
the FDI also decreased with decreased in tourism, so net inflows slowed down which made the
imports to look usually higher than the imports. Than after the recovery started the current
account also started to show a low deficit numbers. Eventually in end of 2022 the Egypt is
projected to give lower current account deficits than even the pre covid time. The prediction for
2023 goes with lowering the current account deficit to minimum of negative 2.6%.
Yes there can be a risk for Egyptian economy if this current account witnesses higher deficits.
This is because the fluctuations in international commodity prices (All food and energy), can
make this current account situation go worse and worsen its position. Because a country like
Egypt which is already facing the debt issues, it is not easy to maintain the high level of reserves
just to keep up with the price fluctuations in the international market.
If we talk about the overall macroeconomic condition of Egypt so it has positive edge at many
places, but it suffers from a lot of issues. The Egyptian economy did well in the pandemic
situation and sustained its economic indicators on the track whereas rest of the world including
giant economies were suffering from it.
So pandemic wise Egypt got a margin, but Egypt should be careful from the situations that are
ahead of it in the future. The high number of foreign and domestic debt, high number in the
Budget deficit, high number in current account deficit, , high number of unemployment, high
number in inflation, low number in economic growth and all these indicators are signing the
Egyptian economy that tough times can prevail in future if not right decisions are taken to
control them in time.
The tight fiscal as well as tight monetary measures are needed to overcome the heated up
economy. In fiscal measure the government can launch the emergency financing programs,
bailout packages for domestic producers, tax incentives, spending on infrastructure, spending on
education and many more such positive fiscal measures.
In monetary terms, the central bank should focus on keeping the inflation in check as needed to
promote the economic growth, keep unemployment rate in line, and manage the money supply in
the market to control the Aggregate demand and maintain price stability.