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

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.


Fishing rights top Brexit talks agenda

Updated 30 November 2020

Fishing rights top Brexit talks agenda

  • A no-deal scenario is widely expected to cause economic chaos

LONDON: Last-ditch Brexit trade talks continued in London on Sunday with fishing rights remaining an “outstanding major bone of contention,” according to British Foreign Minister Dominic Raab.

EU chief negotiator Michel Barnier told reporters that “work continues, even on a Sunday,” as he arrived for the second day of talks.

Barnier had arrived in London on Friday following a spell in self-isolation after a member of his team contracted coronavirus and ahead of the resumption of talks with British counterpart David Frost on Saturday.

Both men warned that a deal could not be reached without major concessions from the other party.

There are only five weeks to go until the end of the current transition period, during which trade relations have remained largely unchanged.

The two key sticking points remain post-Brexit access to British fishing waters for European vessels and the EU’s demand for trade penalties if either side diverges from common standards or state aid regulations rules.

Raab told Sky’s Sophy Ridge on Sunday that this could be the final week of “substantive” talks, with time running out to agree and ratify a deal.

“There’s a deal to be done,” he said.

“On fishing there’s a point of principle: As we leave the EU we’re going to be an independent coastal state and we’ve got to be able to control our waters,” he added.

Barnier told envoys last week that London was asking that European access to UK waters be cut by 80 percent, while the EU was willing to accept 15 to 18 percent, according to a Brussels source.

A British official called the demands “risible,” according to the domestic Press Association, adding that the “EU side knows full well that we would never accept this.”

“There seems to be a failure from the Commission to internalize the scale of change needed as we become an independent nation,” said the source.

However, Raab was cautiously optimistic over the “level playing field” issue, saying “it feels like there is progress toward greater respect” for Britain’s position.

A failure to reach an agreement would see Britain and the EU trading on World Trade Organization terms, with tariffs immediately imposed on goods traveling to and from the continent.

As it stands, Britain will leave Europe’s trade and customs area on Dec. 31, with no prospect of an extension.

A no-deal scenario is widely expected to cause economic chaos, with customs checks required at borders.

Concern is particularly acute on the border between EU member Ireland and the British province of Northern Ireland, where the sudden imposition of a hard border threatens the delicate peace secured by 1999’s Good Friday Agreement.

The talks have already dragged on much longer than expected and time is running out for ratification of any deal by the European Parliament by the end of the year.