2020… A year better forgotten

 

2020… A year better forgotten

A year has changed the whole world on all levels. Things will never be the same from all perspectives.

 

By Ahmed Kamel

A year ago, economists worldwide were upbeat about global growth. Today, they have more doubts than ever while the pandemic’s repercussions are taking their toll on the whole planet. Against a backdrop of unprecedented, complicated socioeconomic conditions, emanating from the Covid-19 pandemic, an economic recovery seems a long way off.

 As the Egyptian economy turns over a new leaf in 2021, a several landmark developments stand out at the monetary, financial, legislative and economic levels, having shaped the nation's landscape in 2020.

The coronavirus pandemic has impacted economic growth rate worldwide, casting a shadow on employment, investment, trade and oil prices.

On the domestic scene, the national megaprojects were like a lifeline in 2020. These projects have soothes the impacts of the pandemic, especially on growth and unemployment.

Under directives of President Abdel Fattah El Sisi, the Moustafa Madbouly-led government has sought to mitigate the economic turmoil that hit the whole world in 2020 via a raft of measures. The focus was national megaprojects, which are considered to be the largest in the Middle East and North Africa.

National megaprojects

Megaprojects, due to their nature, attract large investments and create jobs. The World Bank has highlighted infrastructure as a key sector for growth and job creation.

The national megaprojects comprised a variety of entities in all economic sectors across the country. President El Sisi has opened Sphinx Airport in the Administrative Capital.

The new airport was built on a16-square-kilometer area, comprising some 45 buildings and watchtowers.

In September, the President opened a hydrocracking complex worth $3.4 billion in Mostorod, north of Cairo. The new refinery, the largest in Africa, is designed to provide the North African country with half of its imports of diesel, butane and jet fuel, saving roughly $2 billion annually.

The megaprojects, which were carried out in 2020, also included a number of museums, universities, bridges, transport, power stations and wastewater facilities.  

As part of efforts to combat the crisis, Prime Minister Moustafa Madbouly said in June that the government worked on a number of key national megaprojects to decrease the unemployment rate, support the economy and improve the nation’s infrastructure.

Madbouly said these megaprojects totaled LE4.5 trillion to create jobs and push growth ahead.

The government has earmarked LE300 billion for public investments in the 2020/21 fiscal year. It also targets the reclamation of around 1.2 million acres of land to boost the nation’s food security, relying on its agricultural resources.

Growth disruption  

The pandemic has disrupted the country’s economic growth, which has been sustained by its reform program launched in November 2016 after signing a $12 billion loan agreement with the International Monetary Fund (IMF).

The coronavirus has negatively impacted economy as tourist arrivals plunged.

Monetary policy

The CBE's Monetary Policy Committee (MPC) has maintained a conservative, balanced monetary policy in 2020 to keep the foreign exchange rate stable and to tame inflationary pressures.

A prudent monetary approach has helped Egypt withstand the pandemic’s repercussions, which have cast a shadow on direct investment, employment and aggregate demand.

The MPC met 10 times in 2020. It kept overnight interest rates unchanged seven times. In March, the MPC slashed the interest rates by 300 basis points, or three per cent.

In two other meetings, the MPC cut rates by a total of one per cent. The rate cuts totaled four per cent in 2020, CBE data showed.

The overnight deposit, lending and main operation rates currently stand at 8.25, 9.25 and 8.75 per cent respectively. The discount rate is 8.75 per cent, according to CBE data.

In its last meeting in 2020, the MPC reiterated on December 24 that the path of current policy rates remains a function of medium-term inflation expectations rather than current inflation outturns.

GDP growth

Egypt has maintained a positive growth around 3.6 per cent of GDP despite the pandemic. Most world countries posted near-zero growth. Some economies registered negative growth rates in 2020.

GDP totaled LE5.5 trillion (in current prices) in the fiscal year 2019/20, compared to LE5.2 trillion a year earlier, according to the Cabinet’s media center.

The country’s public investment (in current prices) totaled LE473.8 billion in the fiscal year 2019/20, which ended on June 30, data from the Cabinet’s media center showed.

In the fiscal year 2018/19, public investments reached LE513.7 billion. 

Public debt fell to 87.5 per cent of GDP in the fiscal year 2019/20, down from 90.2 per cent of GDP in the fiscal year 2018/19.  

Positive indicators

Despite the pandemic’s negative impacts, the state revenues to GDP ratio rose to 18.4 per cent in the fiscal year 2019/20, up from 17.9 per cent a year earlier, data from the Cabinet’s media center showed. 

The state expenses/GDP fell to 25.6 per cent in the fiscal year 2019/20, down from 26.1 per cent the previous year.

The state budget deficit fell to 8 per cent of GDP in the fiscal year 2019/20, compared to 8.1 per cent a year earlier.

The state revenues rose to LE366.6 billion on the July-November period, up from LE322.2 on the same period in 2019. Meanwhile, the public expenses rose to LE567.5 billion on the July-November period, compared to LE530.9 billion on the same period a year earlier.

The foreign exchange rate of the US dollar eased from LE16.2 in November 2019 to LE15.7 in November 2020, according to CBE data.

Unemployment fell to a 10-year low at 7.3 per cent in Q3 2020, down from 7.8 per cent in Q3 2019.   

Bridging the financing gap

Egypt signed funding agreements worth more than $15 billion in loans and Eurobonds in 2020 to bridge its financing gap on the back of the Covid-19 pandemic.

Prior to the pandemic, Egypt and the European Investment Bank signed 3 funding agreements worth 122.7 million euros in February.

In May and June, the North African country signed two loan agreements with the International Monetary Fund to get $2.27 billion and $5.2 billion, respectively.

Egypt issued Eurobonds worth $5 billion in May. In September, it issued green bonds totaling $750 million. In July, Cairo received a loan worth $639 million from the Arab Monetary Fund.

In June, Egypt and the African Development Bank signed a funding agreement worth 225 million euros. In a bid to shore up the country’s small and middle-sized enterprises (SMEs) in the face of the pandemic’s repercussions, a number of local lenders received funding worth $600 million from the European Bank for Reconstruction and Development (EBRD).

Egypt and the World Bank signed 4 development agreements worth $1.15 billion. 

In December, Egypt and Agence Française de Développement signed agreement totaling 715 million euros.

S&P Global Ratings has said the overall decline in Egypt’s foreign exchange reserves would be sharper this year absent additional government external debt issuances.

“New external debt in 2020 included: $5 billion of Eurobonds issued in May, $4.8 billion disbursed by the IMF through the RFI and SBA facilities in June, and in September, a $2 billion syndicated loan and $750 million of green bonds,” S&P Global Ratings said in November.  

“We estimate a sharp rise in Egypt's external debt, adjusted for liquid external assets, to about 105 per cent of CARs in fiscal 2020 from 80 per cent in fiscal 2019, and a further increase to 125 per cent in fiscal 2021. We expect this ratio will gradually decline to 100 per cent by fiscal 2023, supported by a rebound in receipts,” it explained.

Foreign reserves

Egypt’s foreign reserves took a dip as a result of the Covid-19 pandemic and lockdown between March and end of June. The reserves stood at $45.5 billion in January and February before the Covid-19 pandemic hit the global economy, affecting a number of sectors, including tourist arrivals, which are a key resource for hard currency in Egypt.

The foreign reserves fell to as low as $36 billion in May, before rising to $39.222 billion in November.