Egypt's economy in six months

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A synopsis of Egypt's Economy in six months, from 30th of June 2013 until 1st of January 2014

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  • Egypt's Economy in Six Months 8 January 2014 Follow us on: Subscribe to MOIC Newsletter MOICEgypt Zbahaaeldin MOICEgypt Ziadbahaa MOICEG Dr. Ziad Bahaa El-Din Deputy Prime Minister and Minister of International Cooperation
  • Ministry of International Cooperation Minister Office ---------- January 8th, 2014 Note on Egypts Economy in Six Months Introduction On 30th June 2013, the Egyptian Economy was in dire straits. Egypt suffered from severe shortages in basic commodities, a dangerously high budget deficit, declining production, increased unemployment and little confidence in markets or the future. Today, and despite these challenges and crises, the Egyptian economy finds itself in a more stable condition. Basic commodities and reserves have been secured, production is picking up, funds have been provided for infrastructure thus boosting employment and output in the construction sector, and economic and social policies are being put in place so as to realize a future vision of justice, development, growth and good governance. This note explains and illustrates the above statement. It presents a detailed diagnosis of the economy and its basic indicators before the tenure of the current cabinet. The note then explains the program enacted on the 12th of September 2013 by the cabinet to address the critical condition of the economy and describes the rate of progress achieved by January 2014. Finally this document alludes to the program of the future and the policies and measures that this interim government suggests as necessary and beneficial for the future of the economy and the country as a whole. The economic program of the current interim cabinet seeks to realize the following four needs and objectives: The need for economic growth and employment, necessitating policies that address the need for increased levels of employment, production, savings and investment, raising the value of work and encouraging the private sector, both local and foreign. The need for social justice necessitates policies that provide all citizens with equal opportunities and access to basic goods and services as well as social protection to mitigate social and economic inequalities while availing all citizens to a dignified life free of dependency. These policies also speak to the need to break generational and gender poverty cycles. The need for a fiscal and monetary balance which calls for policies that preserve state resources and allocate them towards their optimum use, to better serve the economy and society with a higher degree of justice and efficiency, without affecting the rights of future generations. 11 l 1
  • Ministry of International Cooperation Minister Office ---------- The need for institutional and legal reform that require policies that prevent corruption and monopolistic abuse and ensure the creation of a just and efficient legal system, which promotes growth and protects rights, resources and personal property so as to foster a healthy environment for balanced and sustainable growth. The Egyptian economy before the January 25th Revolution During the period from 2005 to 2010, the Egyptian economy witnessed rapid growth. GDP increased from EGP 643 billion in 2005 to EGP 1206 billion in 2010, foreign reserves increased from USD 23 billion in 2005 to USD 35.2 billion in 2010, and foreign direct investment (FDI) reached USD 13.3 billion in 2007. Moreover, growth rate rose to 7.2% in 2007, and the employment rate fell to 8.4% during the same year. Average budget deficit, internal debt and external debt of the GDP reached 9.7%, 64.3% and 18.2% respectively. Major institutional reforms were made in the banking sector, investments, foreign trade, customs and tax administration, as well as in the information technology sector. However, social policies that should have accompanied such economic growth to ensure the fair distribution of the fruits of prosperity, the realization of social justice, and the fair allocation of resources and energy, were not put in place. Social policies that would have helped ensure fair distribution and social protection were neglected. This becomes apparent upon considering the social justice indicators during the period from 2005 to 2010, where overall poverty increased from 19.6% to 25.2% of the total population, while extreme poverty increased from 3.6% to 4.8%. Average expenditure on the health sector remained at around 2% of the GDP, a very low percentage, while expenditure on the education sector declined to 3.6% of the GDP in 2010, as compared with 4.9% in 2005. Perhaps, one of the main reasons leading to the outbreak of the January 25th Revolution was the huge discrepancy between the economic growth and social justice policies, which led to the collapse of the social protection and justice systems. Only the rich and privileged were reaping the fruits of growth. Furthermore, increasing growth rates were accompanied by surging budget deficit and poverty rates, since subsidies and other forms of social expenditures were not directed to those in need. The path towards 30 June 2013 Transition to democracy can have temporary and short term negative effects on the economy as a result of the slowdown of economic activities and the difficulties of decision-making and governance in the midst of unsettled and turbulent times. New national priorities, structures of governance and procedures have to be put in place so as to realize democratic transition. 11 l 2
  • Ministry of International Cooperation Minister Office ---------- In Egypts case, the transitions during the period from January 2011 to June 2013 had detrimental economic effects: A slowdown of economic activities in leading and growth-generating sectors, namely the manufacturing, construction and tourism sectors. A decline in the private sector and in its contribution to GDP due to a deteriorating confidence in the investment climate and unclear political and legal policies. A fall in overall local and foreign demand as a result of the slow paced economy, reduced production rates, and the outflow of foreign investments. A decline in the proceeds of the various sources of foreign earnings on which the Egyptian economy relies when forming its reserves, especially tourism revenues and export returns, and in particular services exports. A rise in production costs as a direct result of unstable security conditions and the difficulty to secure foreign cash for importing raw material required for production. A slow (if not dysfunctional) decision-making process among governmental and official entities as a result of changing policies and a perceived favoritism towards political allies that served to undermine qualified experts. The financial year of 2012/2013 ended on June 30th, 2013 with the Egyptian economy reaching a critical situation and Egypt on the verge of an economic collapse. Economic growth rate declined to 2.1%, unemployment rate rose to 13.2%, total budget deficit of GDP surged to 13.7%, internal debt rose to 75% of GDP and overall poverty increased to 26.3%, while foreign reserves at the Central Bank of Egypt (CBE) fell to USD 15 billion, and the trade deficit increased to USD 31.7 billion. Moreover, the above indicators do not tell the whole story as the economy also suffered an accumulation of financial burdens, most importantly: Accumulated debts on economic authorities and public sector companies. An increase of the accumulated debt service to exceed one fourth of public expenditures. An increased import bill of the basic food commodities and petroleum products. 11 l 3
  • Ministry of International Cooperation Minister Office ---------- A structural imbalance in the state budget, especially regarding social expenditures. Although public expenditures on subsidies and wages increased from 2005 to 2010, nonetheless, overall poverty also increased. This indicates that the two most important forms of social spending (subsidies and wages) were not fairly or rationally distributed. The risk and enormous cost of arbitrations against Egypt in the fields of petroleum, investment, privatization, land licenses and others. The growing need for huge investments to restore the sectors of transport, health and education and to complete the provision of services to villages and slum areas. Despite these burdens the Egyptian economy enjoys great potential for growth and development. Egypt has a wealth of human capital and a potential demographic gift as young people who are almost half the population can, if skilled and employed, create growth and prosperity as well as enough savings to make the social protection system more abundant and effective. The country has a large consumer market for producers, a resilient banking and financial sector that has proven its ability to bear and overcome shocks, and as yet not fully exploited resources in the fields of tourism, industries and services. These are all real potentials and capacities that require a suitable political environment and a good balance between growth and justice to be put into use. 30 June 2013 to January 2014 Since holding office in mid July 2013, this transitional government has adopted an economic policy that gave priority to the immediate and urgent conditions and needs of all Egyptians. The government first stabilized the supply and availability of basic commodities including subsidized food items and bread, petroleum products, and electricity. This was achieved through both local resource management and the mobilization of existing supply chains as well as through the support of several Arab countries, primarily