An overview of the economy of Egypt since 2011

By Ritu Tiwari on June 9, 2014

The Egyptian economy had many structural reforms since 2000. These reforms were related to fiscal policy, monetary policy, privatization and new business legislation to improve its economy (Doaa S. Abdou* 2013). The revolution of 2011 impacted the growth of macroeconomics like real GDP growth, budget balance, current account etc. which increased by 5% annually due to the reforms put in place by the Government.But unemployment and underemployment of the youth remained a major issue for the government. Adding further to the Government’s worries the Egyptian revolution in 2011 also called as January 25 revolution, negatively impacted the foreign direct investment which resulted in high debt, high unemployment, and high poverty rate. In 2012 the foreign exchange reserve of Egypt fell by 16.3 billion whereas in 2010 it was 36 billion (Doaa S. Abdou* 2013). Suez Canal and tourism faced greater impact of this global financial crisis and export sectors like garments and food were also hit. However Egypt sustains the growth by 1.8 points in 2012 as compare to 1.7 points in 2011 (Anon 2010).

Negative impacts of the revolution in Egypt

Egypt has two major economic pillars that is tourism and agriculture. Both have a deteriorating growth after the January 25 revolution. Other factors like foreign exchange reserve, foreign investment, debt crisis, balance of payments, unemployment, inequality, poverty and subsidies and inflation has also shown decreased rate of growth (Doaa S. Abdou* 2013). Also social development and unemployment are the major issues for concern for the Egyptian Government. According to UNDP Egypt has 113rd rank in human development index in 2011 out of 182 countries (Anon 2013). This negative approach of unemployment will certainly result in uncertain economic conditions (Anon 2013).

Women unemployment is another big issue in Egypt as only 7% women were working in 2007 (Anon 2013). In post revolution period, women’s unemployment status remained unchanged. Economic and political eminence of women is decreasing. According to Anon, women’s unemployment rate was 24% in 2012 where men’s rate of unemployment was 9.1% (Anon 2013).

Although the Egyptian economy is working in the favor of business people but it is overlooking ethical responsibilities which creates economic crisis in Egypt  (Doaa S. Abdou* 2013). When business people enjoy economic system, poor people suffer poverty. Inequality in income creates poverty which affects economic performance and enhances corruption  (Doaa S. Abdou* 2013).

Source: Data from Central Bank of Egypt (CBE) and CAMPAS: estimates (e) and prediction (p) based on authors’ calculations. Fiscal year July (n-1)/June (n).
Source: Data from Central Bank of Egypt (CBE) and CAMPAS: estimates (e) and prediction (p) based on authors’ calculations. Fiscal year July (n-1)/June (n).

In 2010, Egypt had welcomed 14.7 million tourists, but it dropped by 60% in 2011 according to the author  (Doaa S. Abdou* 2013). 2 billion dollars were lost by Egypt during this period (Doaa S. Abdou* 2013). Foreign exchange reserve decreased from 15 billion in post revolution to 36 billion in pre revolution. In 2010, foreign investment had reached 6.8 USD billion which reduced by 2 USD billion in 2011. Balance of payment deficit constituted with two deficiencies; current account deficit and trade deficit (Doaa S. Abdou* 2013). Both were retreated in a major percentage. Current account deficit declines by 35.9% in 2011(from 4.3 billion to 2.8 billion) while trade deficit narrowed by 5.3% (from 25.1billion to 23.8 billion) (Doaa S. Abdou* 2013). Services receipt and services payments fell by 7.2% and 5.8%. This majorly resulted in increasing unemployment rate ; which rose by 11.9% in 2011 against 9.5% in 2010. Poverty in Egypt has enlarged from 17.8% to 23% (Doaa S. Abdou* 2013).

How to carry on?

Mossallem (2013) suggested that; to reduce poverty in Egypt, government should implement extensive plans. Egyptian government needs to concentrate on employment issues and produce growth strategies to reduce the rate of unemployment. The Government should  emphasize on education, health, financial, and infrastructure areas to improve employment status of the country .

According to the author, economic concerns can also be reduced by reconstruction of policies. Government should divide property in equal proportion between private organizations to avoid inequality and create more productive property rights. Following are some recommendations which can provide growth to boost the country’s economic reform:

1. Budget transparency

Budget should discourse before execution so that people can debate on it for new recommendations and points that can be eliminated from the budget. In this way controversial issues can be abolished   and appropriate budget plan will be executed. Amendments in budget can help government organizations to resolve financial issues and take initiatives to implement new strategies for economic growth (Mossallem 2013).

2. Fiscal policy

Fiscal policy plays a vital role in economic reform as it correlates with the public financial management like taxation. Government should reform policy through implementing tax incentives to attract FDI to enhance production and technological transfer for the growth of the Egyptian economy. Public debt and public investment are the major subjects that need sustainable attention for eliminating errors from fiscal policy by monitoring and evaluation (Mossallem 2013).

3. Monetary policy

Monetary policy has occupied an essential place in economy(Mossallem 2013). Most of the time exchange rates were overvalued after the revolution  to provide benefits to the exporter but it had detrimental effects on the poor as prices of imported items grew high impacting their buying behavior. This policy also restricted the small and medium enterprises to participate in increasing inflation. Big companies and enterprises did not face the blow of inflation as they had the fund and connections with political elites. Egyptian government need to provide low interest rate, loan guarantees, and lower down the reserve ratio to support rural areas (Mossallem 2013). For example Indian government has policy aimed at agricultural and rural development in which it concentrates on the agricultural production, prices of products, agricultural consumption etc. with the use of instruments like taxes and subsidize.

4. Introduction of long term policy

Above all recommendations the government should establish policies focusing on long term basis to regulate the Egyptian economy efficiently. The policy should constitute roles like:

  1. Increased competitiveness for industrialization,
  2. Instructive provision for enterprises to have a proper entrepreneurial vision and coordination,
  3. Start building institutions in both public and private sectors,
  4. Practical approach in management of integration and,
  5. Increase women empowerment,
  6. Decrease inequality between people of different status,
  7. Internal conflict in domestic environment (Mossallem 2013).

Economic development

Egypt shows sustainable improvement in economic growth since 2012. Egypt will double its growth in 2014 as it reaches at 3.9 points where in 2011 it had only 3.6 points (Anon 2013).

Average annual growth rate of GDP in 2010 -13 (Sources: National data (SRO-NA Survey, official websites), IMF, EIU, SRO-NA Estimates, P: Projection, E: Estimates)
Average annual growth rate of GDP in 2010 -13 (Sources: National data (SRO-NA Survey, official websites), IMF, EIU, SRO-NA Estimates, P: Projection, E: Estimates)

Some recent legislation adopted by the Egyptian government has majorly impacted the economic development (Anon 2013). For example Government lowers the expenditure mainly in energy industry as it has fifth of the total expenditure to reduce deficit,it is also implementing fiscal reforms to increase income of the country. Government implements those projects that could not be implemented due to the transitions in budget(Anon 2013).

Inflation and exchange rate

Consumer price inflation has decreased in 2011-2012 by 7.1% as compare to 10.2% in 2010-2011. However in 2013, inflation goes upward by 8% due to increase in non-oil product’s production. Now author has anticipated that it will go up to 13.7% in 2014 (Anon 2013).

Investment and foreign trade

Investment has increased only by 1%, 39 billion in 2011-2012, while in 2010-2011 it was 38 billion. Private investment enforces the increase in total investment in 2011-2012. It has increased from 229.1 billion in 2010-2011 to 236.2 billion in 2011-2012. According to the report “Egyptian Economic Watch, government is expecting to target 276 billion in 2012/2013 (Anon 2013).