How has Egypt become the third largest Arab economy in 2021? Ahmed Abdul-Rahman explains.
Egypt is ranked third by gross domestic product (GDP) in the Arab world, after Saudi Arabia and the UAE, according to Forbes Middle East magazine. Egypt GDP is expected to reach US 394.3 billion, compared to USD 361.8 billion in 2020.
Egypt ranks 9th in terms of per capita GDP in the Arab world after Qatar, the UAE, Kuwait, Bahrain, Saudi Arabia, Oman, Iraq and Jordan, respectively, according to Forbes.
How did Egypt achieve such a high ranking in the Arab world amid the repercussions of the Covid pandemic? Economies in the Middle East and North Africa (MENA) were affected more than other world economies.
Egypt dealt with the Covid-19 crisis at a time when it was in reasonable shape economically, thanks to the reforms that have been implemented since 2016. Egypt managed to reach a balance between targeted spending to protect expenditure in the health and social security sector while achieving financial sustainability when rebuilding international reserves.
The Egyptian government had announced the allocation of USD 6.13 billion (Egyptian pounds 100 billion), or 1.8% of GDP to mitigate the economic effects of the pandemic. Pensions were increased by 14%, while social cash transfer programs were expanded, and the government launched an initiative to support informal workers in the most affected sectors, including 1.6 million beneficiaries.
IMF forecast
The International Monetary Fund (IMF) expected the Egyptian economy to achieve a "strong recovery" during the 2022/2021 fiscal year, bringing GDP growth to 5.2%, according to a statement in mid-July.
The IMF praised the policies adopted by Egypt during the pandemic, and said: "Egypt was one of the few emerging economies that achieved a positive growth rate in 2020. Thanks to the government's quick and cautious policy response, coupled with support from the International Monetary Fund, the Egyptian economy has shown resilience in the face of the pandemic."
The IMF indicated that the Central Bank of Egypt launched several initiatives to relieve pressure on borrowers and ensure the availability of liquidity for the most affected sectors. This included increasing the possibilities of obtaining credit at preferential interest rates and postponing the payment of existing credit for 6 months.
The IMF expects that per capita GDP in Egypt will continue to rise to USD 3,083 in the 2021 fiscal year, which ended on June 30. This is an increase of 6.8%, compared to USD 3,058 in 2020 and USD 3,001 in 2019.
Egypt agreed with the IMF for a cash injection of about USD 8 billion to counter the effects of the spread of Covid-19 in 2020. This was distributed by USD 2.772 billion through the "rapid financing instrument" and USD 5.2 billion through the "credit standby agreement."
The European Bank expects strong growth in 2022
The European Bank for Reconstruction and Development (EBRD) expects the Egyptian economy to return to its pre-Covid-19 growth level next year. In the latest Regional Economic Prospects report, the bank expects growth to reach 4.2% in 2021 before reaching the pre-pandemic level growth rate in 2022 of 5.2%. This is expected to be close to the level of growth achieved by the economy in 2020.
Exceptional performance of the Egyptian economy
Remittances from Egyptians working abroad increased by 10% on an annual basis during the first 5 months of 2021, according to data from Egypt's Ministry of Planning. Egypt has received remittances of USD 15.5 billion since January 2021 an increase of 10% when compared to the period between January and July 2020.
At the same time, net foreign direct investment (FDI) may have already met the government's targets, as it continues to recover from the low levels reached by the pandemic. Foreign inflows have reached USD 3.4 billion so far in 2021 up from USD 2.5 billion in the first half of 2020.
According to economic performance data issued by the Central Bank of Egypt last April, Egypt achieved a surplus in its balance of payments (BOP) of USD 6.8 billion at the end of last June. This figure is close to what the country achieved in the fiscal year preceding the 2019/2020 pandemic, which amounted to USD 7.5 billion.
Net foreign direct investment thereafter is expected to grow to USD 7 billion in the 2022/2021 fiscal year.
Revenue earned by the government from Suez Canal transit fees, one of the sources of hard currency hit hard by the pandemic, was USD 553.6 million in April. According to data from Egypt's Ministry of Planning, this is the highest number in the history of the Suez Canal, and represents an increase of 16.3% from April 2020.