Egypt economic reboot ‘on track’

Egypt’s economy is recovering despite the challenges of rising oil prices and tightening global monetary conditions. (AFP)
Updated 02 November 2018
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Egypt economic reboot ‘on track’

  • Weaker currency boosts exports and attracts overseas capital as wide-ranging reforms deliver fiscal dividend
  • EFG Hermes’ Mohamed Abu Basha: Egypt’s economy is recovering, and the external and fiscal deficits are narrowing despite rising oil prices and global tightening monetary conditions

LONDON: Egypt’s government deserves credit for rebooting the economy and introducing difficult economic reforms — but there is still work to be done, analysts told Arab News.
In the wake of the IMF agreeing to release another $2 billion to Cairo following a mutually-agreed loan program in 2016, Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes in Cairo, said: “Egypt’s reform story is on track. The economy is recovering, and the external and fiscal deficits are narrowing despite rising oil prices and global tightening monetary conditions.”
Asked about the next economic challenge for Egypt, Abu Basha said it would be about stimulating the real economy through more structural reforms, and boosting private sector investment — both local and foreign — while maintaining macro-stability.
“This is important to reduce unemployment, enhance productivity and protect gains realized over the past few years,” he said.
The introduction of a flexible exchange rate — part of the IMF agreement with Cairo — as well as subsidy cuts led to a surge in inflation that hit 30 percent at worst, but was down to 16 percent in September.

 

A weaker currency has boosted exports and attracted overseas capital, not least from China, which signed off on $18 billion of deals in infrastructure and energy during a September visit to Beijing by Egyptian President Abdel Fattah El-Sisi.
David Butter, Middle East analyst at UK think-tank Chatham House, told Arab News that increased natural gas production had been “very positive for growth” as development of Egypt’s Zohar gas field with foreign oil companies had boosted the balance of payments. “They were spending something like $2 billion importing gas. Now they don’t have to do that, although they are having to pay something to the foreign operators (of Zohar), but there is definitely a net benefit,” he said.
James Tuvey, of Capital Economics, said the government had “stabilized the situation economically.” The reform program had worked well as the IMF had agreed to Cairo’s request to expand social welfare programs to protect the most vulnerable from subsidy cuts and other measures. “Additionally, there is a minimal spending requirement on education and health care, as well as on research and development,” said Tuvey.
He said it was now important to push through with planned privatizations that would attract foreign as well as domestic interest.
Butter said that there was still the issue of the fiscal deficit at about 8 percent of GDP “which needed to be brought down.”
That could be done partly by sustaining economic growth. “At the moment GDP is at about 5.3 percent, and that’s helpful. Increased natural gas production has certainty been positive. But private consumption, a big driver of growth, is still rather weak. Real wage levels have lagged because of inflation,” said Butter.

FASTFACTS

The latest tranche of money from the IMF to Egypt will bring total disbursements to $10 billion under an agreement worth $12 billion in total.


Saudi oilfield attacks ‘had zero impact on economy’

Updated 4 min 45 sec ago

Saudi oilfield attacks ‘had zero impact on economy’

  • Weekend strikes failed to interrupt market supply or revenue flow, Kingdom’s finance minister says

LONDON: Saudi Finance Minister Mohammed Al-Jadaan said that the weekend attacks on the Kingdom’s oil infrastructure would have “zero” impact on the country’s economy as concerns about global oil supplies eased.

“In terms of revenues there is zero impact,” Saudi Finance Minister Mohammed Al-Jadaan told Reuters in an interview on the sidelines of an investor conference in Riyadh.

“Aramco continued to supply the markets without interruption and therefore revenues should continue as they are.”

In a separate interview with Bloomberg, Al-Jadaan said that after a boost to state spending, the government was “seeing momentum” in the non-oil economy and that he expected the sector to hit the 2.9 percent expansion forecast by the International Monetary Fund. Oil prices retreated after the comments, having jumped more than 20 percent at one point on Monday — the biggest spike since the 1990-91 Gulf War.

The International Energy Agency (IEA) said on Wednesday it remained in regular contact with authorities in Saudi Arabia and that for now, markets remain well supplied with ample stocks available. 

IEA member countries hold about 1.55 billion barrels of emergency stocks in government-controlled agencies, which amount to 15 days of total world oil demand. 

In addition, IEA member countries also hold 2.9 billion barrels of industry stocks as of the end of July, a two-year high that can cover more than a month of world
oil demand, the Paris-based agency said.

These stocks include about 650 million barrels of obligated emergency stocks, which can be made immediately available to the market when governments lower their holding requirements.

“Recent events are a reminder that oil security cannot be taken for granted, even at times when markets are well supplied, and that energy security remains an indispensable pillar of the global economy,” said Fatih Birol, the IEA’s executive director.

“This is why the IEA remains vigilant about the risk of disruptions to global oil supplies.”

The Saudi stock market gained 0.6 percent on Wednesday and Saudi dollar-denominated bonds also recovered after retreating on Monday. Earlier Commerzbank said that the oil price rally that followed the attacks was not sustainable and, despite rising regional tensions, lowered its 2020 price forecasts because of slowing demand growth.

The bank cut its Brent forecast for next year by $5 to $60 per barrel and kept its 2019 outlook unchanged at $65.

It also reduced its 2020 forecast for WTI to $57 from $62. Commerzbank forecast WTI to average $58 this year, Reuters reported.

While the attacks had “painfully demonstrated the risks to oil supply,” raising the possibility of short-term price spikes, prices should fall again in the coming weeks as long as there is no “total escalation of the situation,” analysts said.