How the Egyptian economy succeeded in overcoming the COVID-19 pandemic

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Egypt is heading to achieve 4% growth for the current fiscal year. Savings achieved from subsidising petroleum products are estimated to be USD5 billion. Increased investment is expected to reduce the unemployment rate by 2%. Ahmad Abdul-Rahman writes.

A recent study prepared by the Egyptian Center for Thought and Strategic Studies stated that despite the COVID-19 pandemic, the Egyptian economy has succeeded in overcoming the crisis. The study indicated that there are factors and steps taken by Egypt that have succeeded in reducing the impact of the pandemic on the economy.

According to the study, the pandemic was a test to determine the extent of Egypt's continued success in its economic reform programme that was implemented over the years 2016-2019. Although Egypt's budget for the fiscal year 2020-2021 was planned to be the largest in its history at 2.2 trillion Egyptian pounds (USD127 million) expectations during the planning of that budget did not imagine the world going through the COVID-19 pandemic.

Expectations of 4% growth in the economy during the current fiscal year

The study indicates that the Egyptian economy is expected to grow over the current fiscal year by 3.5% to 4%, and that the state's general budget will achieve a primary surplus. The increase in bread subsidies and the increase in government investments are expected to result in an increase in the overall fiscal deficit by 40-50 basis points, reaching the level of approximately 6.7% of GDP

The study too sheds light on three main factors - petroleum subsidies, bread subsidies, and public investments. The aim is to identify the general trend of these items in the budget and their potential effects on the state's general budget.

The study indicated that Egypt is expected to achieve cost savings of about USD5 billion in terms of petroleum products. As for food subsidies (bread or wheat subsidies), they are expected to rise to account for 11% of spending due to the increase in the price of wheat and the imposition of a temporary tax by Russia. Public investments in the budget will also rise by about 60% in the first half of the year 2020-21 than expected, to reach about 16-18% of public spending, which will contribute to an increase in the budget by about 20 billion Egyptian pounds.

The state's position on subsidizing petroleum products

With regard to subsidising petroleum products, the study confirmed that the economic reform had previously witnessed a major liberalisation of petroleum product prices in Egypt, which contributed positively to improving the resilience of the Egyptian economy during 2020 - of COVID-19. Despite this, there is still an item to support petroleum products in the budget for the fiscal year 2020-2021. The state allocated a subsidy of petroleum products worth 28.1 billion Egyptian pounds (compared to 52.9 billion for the previous year. 

The effects of the COVID-19 pandemic on food subsidies

The study stated that an amount of 47.5 billion Egyptian pounds was allocated to support wheat in the budget for the fiscal year 2020-2021. That support is approximately 57% of the value of food subsidies in the budget, amounting to 84 billion Egyptian pounds.

Russia is the most prominent supplier of wheat to Egypt and its price is closely related to the price of wheat exports from Russia.

Russian wheat prices are competitive globally because of subsidies, making the country the world's fourth producer of wheat after China, India, and the United States.

Government investments helped lower the unemployment rate

In terms of investments, the study affirmed that Egypt has made great efforts to stimulate the growth of its economy in fiscal year 2020-21. Government investments in GDP increased over that period, with public spending reaching 16%-18% of GDP . This percentage is higher than the average government investment rates during the previous seven years, which amounted to 14% of GDP.

The study shows that government investments contributed to a decline in the unemployment rate of 7.2% in the fourth quarter of 2020, compared with 8% in the fourth quarter of 2019 As a result, the unemployment rate decreased by about 2% from 9.6% in the second quarter of 2020, its highest level in two years.

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Tuesday, 03 August 2021