Egypt Receives 2020 with Historic Economic Performance

Egypt receives the year 2020 with historic economic performance, witnessing several positive indicators, which was harvested by the end of the economic reform program.

The most prominent of those indicators were the continued improvement in the economic growth, which contributed to the decline in the unemployment rate and the rise of Egypt's foreign exchange reserves, amid good performance of the pound, as well as historical revenues recorded by the tourism sector.

GDP Growth

The Egyptian economy continued to improve in growth rates during 2019, mainly supported by manufacturing, natural gas, construction, tourism and communications, to put Egypt on top of the strongest economies of the Middle East and North Africa (MENA) with 5.7 percent, followed by Iraq at 4.3 percent.

The growth rate of Egypt's economy increased during the last fiscal year 2018-19 to reach 5.6 percent compared to 5.2 percent during the previous fiscal year.

The growth rate reached about 5.6 percent, during the third quarter of 2019, the highest rate since the FY 2007-08, according to data from the Central Bank of Egypt (CBE) .

The Egyptian economy reached 5.6 percent in Q1 2019-20, compared to 5.3 percent during the same quarter of the previous fiscal year.

Finance Minister, Mohamed Maait expects that the growth rate will reach 6 percent during the current FY 2019-20, and about 6.4 percent by 2021-22.

The European Bank for Reconstruction and Development expected the growth of the Egyptian economy at 5.9 percent in the fiscal year 2019-20, compared to 5.6 percent in the previous year.

The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors

However, according to IHS Markit Research, in cooperation with Emirates NBD, data showed that the Purchasing Managers' Index (PMI) for Egypt dropped to 47.9 points last November, compared to 49.2 points in October.

The PMI is an index of the prevailing direction of economic trends in the manufacturing and service sectors.

The study revealed that production witnessed a contraction for the fourth month in a row with continued decline in working conditions, the fastest since September 2017, noting that companies sought to limit activity due to the decrease in new orders.

On the other hand, the bank’s statement confirmed that purchasing activity improved for the first time since July, slightly, as inventory levels increased, as some companies expected sales to increase in the future.

As the current slowdown in market conditions continues, a large proportion of firms expected production to increase in the new ye, according to the Index.

Unemployment

As the economy grows, the number of employees in Egypt has risen to support the unemployment index  to drop by more than 6 percent compared to the level of 2013, which recorded 13.9 percent.

In the latest government indicators, the unemployment rate in Egypt decreased annually during the third quarter of this year to 7.8 percent compared to 10 percent during the same quarter last year, a decrease of 2.2 percent.

The size of the labor force in Egypt increased to record 28,406 million during Q3 2019.

Egypt's Foreign Exchange Reserves

The foreign reserves of Egypt continued to record historical levels during 2019, supported by funds, foreign bonds, in addition to an improvement in foreign exchange resources, most notably from the tourism sector that recovered significantly during the year.

By the end of November 2019, Egypt's foreign exchange reserves increased by about $ 2.8 billion, compared to the last year's levels.

Reserves recorded about $ 45.35 billion at the end of November 2019, compared to $ 42.55 billion at the end of December 2018.

The Egyptian Minister of Finance, Mohamed Maait, affirmed that Egypt's cash reserves cover Egypt's import needs for more than 8 months.

During the period from May 2012 to June 2017, Saudi Arabia, the UAE, and Kuwait deposited a total amount of $8 billion in the CBE.

Egypt was scheduled to repay $5.2 billion to Saudi Arabia, however, in October 2019, the Egyptian Central Bank signed Saudi deposit renewal agreements with the the Saudi Fund for Development (SFD) on the sidelines of the International Monetary Fund (IMF) annual meetings in Washington.

Tourism revenue

The tourism sector has been able to recover from the crises that it was exposed to since 2011 to achieve the highest revenues in its history during the previous FY 2018-19.

Tourism revenues increased during the last fiscal year to $ 11.4 billion, which is the highest historical level, compared to $ 7.6 billion during the previous fiscal year.

The recovery of the sector comes after tourism revenues declined significantly over the past years to record about $ 3.76 billion during FY 2015-16.

Inflation

Egypt succeeded in curbing the rise in inflation rates during the current year, which have risen to record high following the liberalization of the currency, pushing the central bank to cut interest rates 4 times to enter the cycle of monetary easing.

According to the latest monitoring of the Central Agency for Public Mobilization and Statistics (CAMPUS), the total annual inflation rate for Egypt dropped to 3.6 percent during November 2019, compared to 17 percent during the same month last year.

The decline come despite the measures to rationalize subsidies within the framework of the economic reform program, yet, Egypt saw a cut in fuel prices recently.

The rate of inflation in Egypt's cities rose in July 2017 to its highest level since June 1986, reaching 35.1 percent, and the second highest level ever since the start of recording urban inflation data in 1958, however, the government managed to cut inflation to single digit.

Lower inflation does not mean lower prices, yet, lower rates of increase in prices.

Petroleum trade balance

One of the positive indicators that recorded noticeable levels during the current fiscal year was the shift in the petroleum trade balance for Egypt to achieve a surplus for the first time since FY 2012-13.

According to data from the Central Bank on the performance of the balance of payments, the petroleum trade balance for Egypt during the past fiscal year achieved an initial surplus of $ 8.1 million, compared to a deficit of $ 3.7 billion dollars during the previous fiscal year.

This came as a main result of the jump in investments in the oil and gas sector, mainly the discovery of new oil fields in the Mediterranean.

The pound

2019 has been a good year for the Egyptian pound since the decision to liberalize the exchange rate in 2016.

The price of the dollar against the pound recorded the lowest level since February 2017, according to the Central Bank data.

The  pound achieved gains against the greenback by about EGP 1.87 over the course of 2019.

CBE data indicated that the average dollar price recorded EGP 17.87 for purchase and EGP 17.96 for sale at the beginning of this year, while the average local currency exchange rate reached EGP 15.99 for purchase and EGP 16.09 for sale at the end of trading yesterday.

Initial surplus

Among the positive indicators during the year is the continued decline in the ratio of the total deficit of the state budget to the gross domestic product (GDP), achieving an initial surplus in 2019 of EGP 7 billion during the first quarter of this fiscal year.

The primary surplus is the difference between revenues and expenses without calculating the interest on debt.

The budget deficit rate of GDP increased during the first quarter to 2.1 percent, at a value of EGP 131.4, compared to 1.9 percent  at a value of EGP 102.3 billion during the same quarter last fiscal year.

Debt 

Egypt's high debt remains a challenge for the government, which developed a plan by the end of 2018 aimed at reducing the debt ratio of GDP.

According to the latest data of the CBE, Egypt's domestic debt increased by the end of March to EGP 4.204 trillion, equivalent to 79 percent of the GDP, compared to EGP 3.538 trillion during the same period a year earlier.

Also, the balance of the external debt increased to about $ 108.7 billion at the end of June, an increase of about $ 16.1 billion compared to 2018 estimates.

However, Egypt succeeded in reducing the public debt level of GDP to less than 93 percent by the end of June 2019, compared to 108 percent a year earlier.

The Egyptian government expects the ratio of Egypt's public debt to GDP will drop to less than 80 percent by the end of FY 2020-21.