Tuesday 05 July, 2022

Al-Estiklal Newspaper

Deterioration or Growth? Reasons for Conflicting International Reports on the Egyptian Economy

2022/05/15 04:05:00 | Reports
"Egypt under Sisi is a beggar state."
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Under Abdel Fattah al-Sisi's regime, Egyptians are living a bitter economic reality that is worsening daily, particularly with the outbreak of the Russian-Ukrainian war on February 24, 2022, and the country's financial situation worsened by the more than $150 billion foreign debt crisis, observers say.

Despite the figures and expectations presented by rating agencies and international economic institutions about the Egyptian economy, they remain contradictory amid questionable and controversial conflicts, while not reflecting the reality of the situation of Egyptians.

Egyptians are suffering from a terrible rise in the prices of all commodities, primarily fuel and bread, with a steady decline in government support, a significant decline in the value of the pound, and double unemployment and poverty rates, with the largest proportion of national income going to service the debt.

 

Conflicting Statements

Economists, including Abdelnabi AbdulMutallab, point out that international economic reports are not in keeping with the reality of Egyptian life: "Local and global indicators say that the Egyptian economy has achieved an unprecedented breakthrough in Egypt's ancient and modern history."

"The Egyptian economy remains one of the best no matter how high prices, the fall in the pound, the number of poor, the disappearance of medicine, and the worsening of education," he said on Facebook on April 18, 2022.

Although Egypt went on to obtain a new IMF loan on March 21, 2022, and the central bank announced on April 19, 2022, that the country's external debt would rise to $145.5 billion by the end of the second quarter of 2021/222, Fitch Ratings predicted that the debt rate for GDP would fall to 91 percent in fiscal year (2021/2022).

More than half of Egypt's foreign government's foreign debt is owned by international institutions with which Egypt enjoys good relations, it said in an April 24th report, along with Fitch's vision that Egypt's domestic banking sector is a major investor in debt in local currency.

However, on April 6, 2022, Standard & Poor's Global, the global credit rating agency, predicted that Egypt would become the first emerging market in Europe, the Middle East, and Africa to issue sovereign debt, with bond sales of $73 billion in 2022.

But on the ground, according to economist Mamdouh al-Wali, the volume of external debt on April 3rd amounts to more than $151 billion and is likely to increase strongly.

Egypt's public debt accounts for 94 percent of GDP in the fiscal year 2021/222, according to IMF projections for April 2022.

In the same context as the discrepancy between international figures, statistics, and estimates of the situation of the Egyptian economy, and its actual reality, the IMF president's statements on the Egyptian economy conflicted with a report issued by the IMF, on two consecutive days.

While Kristalina Georgieva warned of a deteriorating economic situation in Egypt and said that millions of Egyptians were in danger, an IMF report gave an upward trend to the growth of the Egyptian economy, contrary to what is expected from the decline of the world economy, in two paradoxes that raise questions and speculation.

At a press conference on April 20, 2022, the IMF director now described the Egyptian economy as "deteriorating, getting worse."

"Egypt is suffering from high fuel and food prices, relying on food imports from Russia and Ukraine, which are experiencing military confrontations," she said.

On the other hand, in a dramatic paradox that goes against the current global situation, the IMF has raised its forecasts for the growth of the Egyptian economy, despite at the same time forecasting a significant slowdown in global growth.

In its April 19 global economic outlook report, the IMF lowered its forecast for global economic growth from 4.4 percent to 3.6 percent in 2022/2023, affected by rising inflation and economic damage caused by the Russia-Ukraine war.

In contrast, the IMF forecast Egypt’s economy to grow by 5.9 percent in 2023/222, a figure more optimistic than official Figures, which reduced growth prospects to 5.7 percent from 6.2-6.5 percent due to the repercussions of the Ukraine war.

 

Deterioration or Growth?

Commenting on the discrepancy, economist Mahmoud Wahba said Georgieva’s speech contradicted the IMF's expectations that Egypt's growth rate would rise to 5.9 percent.

He explained via Facebook on April 20th that the discrepancy "is due to the fact that the fund's data and expectations come from the Egyptian government, not data collected by the Fund, or by a neutral third party."

Although the IMF's report contradicts its director's talk and takes a trend contrary to the global situation, which faces a significant rise in food and energy prices that threatens to slow economic activity, it also contradicts the reality of Egyptians who do not feel any improvement in growth rates, observers said.

Egypt's consumer price inflation rate in March 2022 rose 12.1 percent year-on-year from 10 percent the previous month, amid sharp rises in commodity prices, mainly energy and food, according to the Central Agency for Mobilization and Statistics.

"On an annual basis, consumer prices in the food and drink sector rose by 23.2 percent as vegetable prices rose by 28.3 percent, oils 36.2 percent, cereals and bread by 24.5 percent," the government said on April 10.

This is a reality that has been warned of being exacerbated by international institutions, international newspapers, and other research institutions, declaring its fear for Egypt's economic future as the most populous Arab country, and its bankruptcy and continued sale of assets as a result of the worsening debt, especially since Egypt's public indebtedness is the largest in the Arab world and the Middle East.

In a report published on April 15 on the Website of the Egyptian Institute of Studies, economist Ahmed Malallah warned that the Egyptian regime may be forced to sell Egyptian assets at the lowest prices to avoid state bankruptcy.

He concluded that as Egypt’s needs mount, including the need to pay off old debts, the size of the loans will not be enough to meet the needs, which will lead the state in the search for alternative sources of financing for loans to sell Egyptian assets at the lowest prices to avoid state bankruptcy and turn Egypt into a failed state.

"Georgieva’s statement, at the spring meetings of the IMF and the World Bank, about the deterioration of the Egyptian economy and the exposure of many Egyptians to difficult living conditions that may be the result of the War of Russia and Ukraine," economist Ali Abdulaziz said in his reading of the scene.

He adds to Al-Estiklal, that the talk of Georgieva, carries a lot of publicity to the IMF, and confirms Egypt's need for the international institution, stressing that it is "a sign that Egypt needs financial stability and a new program with the FUND that takes into account the social dimension."

According to the Egyptian academic, Georgieva’s speech here "does not contradict the IMF's expectations of 5.9 percent growth in the Egyptian economy in 2022 and 5 percent in 2023, with inflation expected to rise by 11 percent in 2023, despite the IMF's expectations of global economic growth of only 3.6 percent."

He explains that the Egyptian situation has some differences in estimating growth rates, saying that "growth levels overlap with many major projects and the huge amount of spending from the system on them."

"Tens of millions of Egyptians will suffer from the aftershocks of global inflation, lack of dollar liquidity, and currency depreciation, due to the high import bill and increased external obligations," Abdulaziz said.

"On the other hand, what the Fund has said about the level of growth remains a mere expectation in accordance with current circumstances," he said.

But the Egyptian expert reiterated that the fund "promotes its successes in Egypt, despite increased external debt and increased reliance on hot money, which reached $34 billion in September 2021, and about $20 billion came out of it."

 


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References:

1

Transcript of April 2022 MD Kristalina Georgieva Press Briefing on GPA

2

IMF raises its forecast for growth of Egyptian economy to 5.9% in 2022

3

Egyptian debt in Standard & Poor’s report: semantics and machinery [Arabic]

4

Egypt’s mounting debt crisis and economic woes explained

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economy egypt imf sisi