Structural reforms in Egypt readied its economy for the impact of the ongoing global pandemic, according to the country’s minister for international cooperation.
“We entered this crisis with fiscal buffers as well as foreign reserve buffers, which helped weather the first shock,” Rania al-Mashat told CNBC’s Hadley Gamble this week.
“If it weren’t for those comprehensive reforms on the tax side, on the budget, on foreign exchange and so forth, the situation would have been … even more difficult.”
The country was on a reform program with the International Monetary Fund from 2016 to 2019. Egypt is one of only two countries in the Middle East and North African region that the IMF expects the economy to grow in 2020, though at a modest rate of 2%, compared to last year’s 5.6%.
Egypt has reported 7,201 cases of the coronavirus infection and 452 deaths. Turkey and Iran are the hardest-hit countries in the MENA region.
The minister said Cairo will continue to make changes amid the virus outbreak.
“We’re really pushing forward with many of the structural reforms that we wanted to do anyway. But it’s coming in a very expedited fashion related to social safety nets, widening those to people who are vulnerable. Also, to financial inclusion, there has been a focus on the unorganized and informal labor,” she said.
Egypt allocated 100 billion pounds ($6.35 billion) to tackle the Covid-19 crisis and 20 billion pounds to support the country’s stock exchange, according to Reuters reports.
That, however, could have an impact on the country’s financial position because it has “limited fiscal space and high public debt,” said Garbis Iradian, Institute of International Finance’s MENA chief economist.
A man wearing a face mask rides a motorcycle in Cairo, Egypt, on May 3, 2020.
Wu Huiwo | Xinhua News Agency | Getty Images
“We expect the fiscal deficit in FY 2019/20 (ending June) to widen from 8.0% of GDP in FY2018/19 to 8.5% in FY2019/20 because of lower growth in tax revenues and scaled-up spending,” he wrote in a report dated May 3.
The “sharp decline” in exports, tourism, remittance inflows and Suez Canal receipts will also widen the country’s current account deficit, he predicted.
Egypt has approached the IMF for financial support as the virus puts pressure on its economy, especially tourism, which accounts for more than 10% of GDP.
While the government announced on Sunday that hotels can begin to operate at 25% capacity, Emirates NBD analysts wrote that “the onerous requirements on hotels to be allowed to reopen will likely see only partial take-up.”
The country’s Purchasing Managers’ Index also made a “dramatic fall” to 29.7, well below the neutral 50 level, wrote Khatija Haque, the bank’s head of MENA research.