Egypt’s Economic Crisis

Following September 11, there are signs that Egypt is experiencing an economic crisis. In particular, the country has beensuffering serious liquidity problems, due to a drop in the flow of hard currency.

Less Hard Currency
Egypt's hard currency comes from a number of sources, most of which have been affected by the global economic crisis.

• Tourism, airlines, and shipping: Losses of $2-3 billion are expected in the tourism sector, which is a key source of foreign exchange and the main engine of economic growth. In addition to this decline, the air and shipping industries have been hit by a 50% increase in insurance premiums. Suez Canal revenues have also dropped.
• Oil prices: These have fallen due to the deepening recession in the U.S. Additionally, Egypt imports more oil than it exports, by some $500 million annually. While over the last three years two-thirds of Egypt's exports have been oil and oil derivatives, it has insufficient oil reserves for the long term.
• Remittances from Egyptian nationals working abroad: These have declined from $3.8 billion in 2000 to $3 billion in 2001, and further declines are projected.
• Drop in direct foreign investment: This has declined from $1.6 billion in 1999-2000 to $507 million in 2000-2001.

Egypt is now seeking immediate balance-of-payments support from its traditional donors, as well as from the International Monetary Fund. The U.S., the E.U., and the international financial institutions are providing assistance to alleviate the pressure on the Egyptian economy.[1] Egypt is due to receive $959 million from the U.S. this year, with $655 million to be disbursed over the period of a year. The remaining $304 million is from accumulated undisbursed aid from past years.[2]

Thirty-seven donors, both countries and financial institutions, are slated to meet February 5-6, 2002, in Sharm Al-Sheikh to review the current year's aid to Egypt. Egypt expects to receive enough assistance to cover its current account deficits without having to dip any further into its dwindling foreign currency reserves, providing that it can stabilize its national currency.

The serious debate in Egypt amongst the political and economic leadership on measures needed to handle the crisis is encouraging. Less encouraging, however, is the absence of the political will to translate such measures into a viable economic reform program. As the Egyptian government daily Al-Ahram wrote, "2002 will confirm to us that there is a price to be paid for hiding our heads in the sand for too long."[3]

Reserves Down 50% in Five Years
At an economic symposium held in Alexandria on January 12, 2002, Egyptian Chamber of Commerce Deputy Chairman Ahmad Al-Wakil said that during 1997-2001, Egypt's foreign exchange reserves dropped from $30 billion to $15 billion. He attributed the decline to the government's conflicting policies for the pound.[4]

Despite government efforts since September 11 to inject $2 billion into the foreign currency market, the dollar has continued to rise against the Egyptian pound. Arabic Center for Financial and Banking Studies Director Dr. Nabil Hashad commented that he found this rise neither surprising nor unexpected.[5]

In addition, Moody's Investor Services, the debt-risk analysis agency, has recently downgraded many of Egypt's commercial banks, placing them in the range of C- to D+.[6]

Investors Not Eager to Purchase State Enterprises
Egyptian and foreign investors are apparently uninterested in purchasing any of 36 state companies in the framework of the Egyptian government's privatization efforts – even though the government is offering advantageous terms, including favorable rental conditions and a five-year tax break.[7]

Central Bank of Egypt Governor: No Devaluation Plans, But…
On a recent visit to Kuwait, Central Bank of Egypt (CBE) Governor Mahmoud Abu Al-'Uyoun declared that there was no intent to devalue the Egyptian pound. He added, however, "No central bank in the world would announce its intentions in advance."[8] However, a few days later, the London-based Arabic-language daily Al-Sharq Al-Awsat reported that Al-"Uyoun had asked Kuwait to deposit $150 million with the CBE to bolster its foreign currency reserves.[9] The next day, the London daily Al-Hayat said that Egypt was seeking Kuwaiti buyers for some of its state-owned banks.[10]

Speaking to reporters in Cairo, Abu Al-'Uyoun said that as things stood today, Egypt would be able to absorb a deficit of $2 billion through the end of 2002. He said that while Argentina was in crisis, Egypt merely had problems, and that there was no shortage of money to meet Egypt's foreign obligations. He stressed that the government and the CBE alone could not revive the economy, and encouraged individual consumers to spend in order to generate economic activity such as employment and production. Explaining that devaluing Egyptian pound was a matter of economic reality and would help exports, and that it was not a matter of honor, he said that the authorities were considering de-linking the Egyptian pound from the U.S. dollar and linking it to a basket of currencies.[11]

A few days later, Al-Sharq Al-Awsat reported that despite Abu Al-'Uyoun's assurances, food prices were heading upwards and the dollar had reached a record high.[12]

CBE Senior Adviser Muhammad Al-Barbari indicated that an additional devaluation of the Egyptian pound in the near future was "generally conceivable." However, he warned against "some international organizations that seek to light a fire under the foreign exchange policy so as to force [Egypt's] monetary authorities to decide upon a large devaluation of the pound."[13]

SUPPORT OUR WORK

$500 $250 $100 OTHER CryptoCurrency Apple Pay Paypal Credit Card

$7 Billion To Create Jobs for All
At a seminar on unemployment held January 14 2002 under the auspices of the government daily Al-Gumhuriya, one participant said that the population of Egypt would reach 123 million by 2019. According to the paper's report, the man said that there are 800,000 new job seekers every year, and this number would increase with population growth. He estimated the cost of creating one job in industry at LE 100,000 ($20,000) and in agriculture at LE 50,000 ($10,000), with the total cost of creating jobs for 800,000 people at LE 36 billion – over $7 billion. Realistically, he said, he could not see where this investment in creating jobs would come from.[14]

Egypt Faces Food Production Challenges
The director-general of the International Center for Agricultural Research in the Dry Areas, 'Adel Al-Biltagui, said in a speech in Cairo that Egypt has been able to reduce the gap in food production versus consumption from 26 million tons in 1982 to 4.5 million tons in 2000, despite population growth. He projected a 2% annual increase in food production between now and 2020. However, he said, if the consumption pattern remains steady, as it has since 1995, a higher increase will be necessary. He added that were individual food consumption to increase by 2020 following changes in diet or increased individual income, the country will face an even greater challenge.[15]

Egyptian Parliament: Long-Term Strategy Needed
A report by the Egyptian parliament's Economic and Financial Committee warned against "continued dependence on the foreign exchange reserves to close the gap between supply and demand for foreign currency," and called for a long-term strategy to encourage exports.

The report attributes most of the liquidity problem to a severe imbalance between exports and imports, with imports sharply outweighing exports by some $12.5 billion in 2001. It says that in addition to increasing bankruptcies and sparking a sharp decline in real-estate prices, the economic slump has grounded many industrial enterprises. Last year, the report said, $9 billion in imports could have been replaced by domestic goods and services.[16]

PM: "Rise in Dollar Won't Affect Subsidies"
In a parliamentary policy statement, Egyptian Prime Minister Atef Ebeid reassured the public that the government will continue subsidizing essential goods and services. Ebeid said the government pays out LE 18.8 billion (some $4 billion) annually for subsidized goods and services, among them health care, education, electricity, gas, and food staples.[17]

U.S. Agency for International Development Praises Egyptian Economic Reform Efforts
U.S. Agency for International Development administrator Willard Pearson said in Cairo that the forthcoming American assistance was in response to Egyptian efforts at economic reform. Pearson emphasized that this aid had already been allocated to Egypt and was merely being expedited following U.S. President George W. Bush's commitment to help Egypt with its economic woes. [18]