The IMF Country Focus discussed the government’s response to the pandemic with the IMF team for Egypt. The role of IMF in supporting Egypt and priorities and challenges moving forward.
How did the COVID-19 pandemic impact Egypt
The Covid-19 pandemic gave an enormous shock to the Egyptian economy, just like all the emerging markets are going through.
This lack was promptly in the shade when there was a sudden pause in tourism in the country. And these results from fallout showed in 12% of GDP, 10% of employment, and 4% of GDP in foreign currency earnings.
There was a temporary decline in domestic activity when the government showed up the preventive measures. Lockdowns and restrictions in public spaces were imposing all-around places to prevent the spread of the virus.
The government reduces the tax revenues by stretching its budget.
During March-April 2020, all investors pulled out their money from the emerging markets in a flight to safety. And due to all this, there were approx $15 billion capital outflows in Egypt.
Although, thanks to short lockdown and Egypt’s relatively diversified economy, the country has shown positive growth.
Measures the government enact to tackle the crisis
The bubble of the covid-19 crisis in Egypt was significant. Nonetheless, the reforms executed since 2016 to restore macroeconomic imbalances, including under the 2016-19 Extended Fund Facility (EFF).
Those govern the flotation of the exchange rate to eliminate currency overvaluation, fiscal consolidation, energy subsidy reform to address a critical fiscal risk and social spending spaces, and structural reforms for the business climate, attraction for the investments, and increase employment opportunities, in particular among youth and women.
While preserving economic stability, this helped the government respond quickly with a complete support package.
For example, in the hardest-hit sectors such as tourism and manufacturing, fiscal support included relief for businesses and workers.
Moreover, during 2020 the Central Bank of Egypt reduced policy interest rates by 400 basis points. In addition, with the overnight deposit, the rate was cut from 12.25 percent to 8.25 percent.
And this was all done to support economic activity and ease pressures in domestic financial markets.
Many initiatives are also there to reduce stress on borrowers and ensure liquidity for the most impacted sectors.
During the Covid-19 crisis, all these exceptional financial sector measures were imperative to guarantee smooth credit flow in the economy.
The role of the IMF plays in supporting Egypt’s response and recovery
Addressing the financing needs from the pandemic, the IMF has provided about 8 billion dollars n financial support to help Egypt.
To warrant that the government had enough foreign currency to fund essential imports and other needs, the Rapid Financing Instrument contributed $2.8 billion in emergency financial assistance in May 2020.
The Stand-by Arrangement (SBA), approved in June 2020, implemented the government admittance to about US$5.4 billion over the subsequent 12 months.
The SBA offered a helping hand to the authorities for maintaining economic stability, rebuild international reserves to restore bumpers drawn down in response to the crisis.
Top challenges and priorities for Egypt moving forward
The growth in the economy is expected to be bound in 2021 to 5.2 percent. However, the outlook is still clouded by risks related to the pandemic, including the full recovery of tourism.
There are many factors which Egypt has to consider for the growth of its economy. Such as ensuring a level-playing field for all firms, reducing the role of the state in the economy, improving the business environment, and increasing Egypt’s integration into global trade by lowering trade barriers and providing predictability of customs procedures will also be critical to unleash Egypt’s enormous growth potential, reduce poverty and improve inclusiveness.
The IMF will be giving hand in Egypt’s reform efforts as specific policy measures to support these objectives are going well.