世界发展银行-Egypt-Economic-Monitor,-November-2020---From-Crisis-to-Economic-Transformation---Unlocking-Egypt_rsquo_s-Productivity-and-Job-Creation-Potential_63页_19mb

Egypt Economic Monitor Summary

Core Content

This document presents an overview of Egypt's economic developments prior to and during the early stages of the COVID-19 pandemic, as well as a special focus on productivity growth and job creation potential. It outlines the macroeconomic and structural challenges Egypt faced, the response to the crisis, and the path forward for economic transformation.

Main Points

Prior to the COVID-19 Crisis

• Macroeconomic Stability: Egypt had strengthened its macroeconomic fundamentals through fiscal, monetary, and energy sector reforms.

  • The primary budget balance turned into a surplus, reaching 1.9% of GDP in FY2018/19.
  • The overall budget deficit and government debt-to-GDP ratios declined to 8.1% and 90.2%, respectively, from 10.9% and 108.0% two years earlier.
  • Foreign reserves reached US$45.5 billion by end-February 2020, covering around 8 months of merchandise imports.
  • The parallel market rate was eliminated following the 2016 exchange rate liberalization.

• Structural Challenges:

  • Non-oil private sector activity remained constrained.
  • Job creation in the formal sector was limited, with a significant portion of workers lacking formal contracts or health insurance.
  • Tax revenue mobilization was sluggish, and the tax-to-GDP ratio was relatively low.
  • Non-oil merchandise exports and foreign direct investments (FDI) were below potential, with their shares of GDP declining to 5.6% and 2.7% in FY2018/19, respectively.

• Economic Growth:

  • Real GDP growth reached 5.6% in FY2018/19, up from an average of 4.6% in the previous three years.
  • Growth was primarily driven by net exports and investments, with the PMI indicating subdued private sector activity (averaging 49.3 during FY2018/19, below the 50 threshold).
  • The private sector's share in GDP increased slowly, while the public sector remained a significant employer, often in low value-added activities.

Impact of the COVID-19 Crisis

• Immediate Response:

  • The government allocated a LE100 billion (1.7% of GDP) emergency response package.
  • Monetary policy was eased, and credit and tax forbearance measures were introduced to support SMEs and households.
  • Preferential interest rates were applied to loans in key sectors like industry, agriculture, tourism, and construction.

• Economic Consequences:

  • The crisis caused an economic contraction of 1.7% during April–June 2020.
  • Unemployment rose to 9.6%, up from 7.7% in the previous quarter.
  • The private sector's contribution to GDP growth was affected, with a decline in employment and reduced productivity.

• External Account Pressures:

  • Foreign reserves declined rapidly due to portfolio outflows and the collapse in tourism and merchandise exports.
  • Egypt issued a US$5 billion Eurobond, secured a US$2.8 billion RFI loan, and later a US$5.2 billion SBA to manage the balance of payments (BoP) crisis.
  • The Suez Canal and tourism receipts dropped significantly, contributing to the current account deficit.

• Fiscal Challenges:

  • Fiscal consolidation continued despite the crisis, but the tax-to-GDP ratio was still low.
  • Social protection was increased, but health and education spending remained below desired levels.
  • Interest burden on the public budget was significant, limiting resources for investment.

Productivity and Employment Analysis

• Productivity Growth:

  • Egypt's productivity growth has been relatively modest.
  • The employment-to-working-age population ratio declined more sharply than in other comparators.
  • Public sector productivity has lagged behind the private sector, with the private sector showing limited within-sector productivity gains.

• Sectoral Shifts:

  • The private sector has gradually taken a larger share of GDP over the past fifteen years.
  • However, employment shares have increased in low value-added sectors, and productivity growth has not kept pace.
  • The productivity-job creation nexus is weak, with low correlation between productivity and employment growth in key sectors like manufacturing.

• Key Constraints:

  • Non-oil exports and FDI remained below potential, with FDI declining to 2.7% of GDP in FY2018/19.
  • The real effective exchange rate (REER) was volatile, partly due to excessive real appreciation and subsequent depreciation.
  • High inflation negatively impacted domestic savings, further constraining growth.

Key Recommendations for Economic Transformation

1. Sustaining Macroeconomic Stability:

   • Continue fiscal consolidation and debt management.
   • Ensure policy predictability and transparency in public finances.

2. Improving the Business Environment:

   • Reduce red-tape in dealing with tax and customs authorities.
   • Streamline land ownership, registration, and transfer procedures.
   • Implement measures to improve financial inclusion, such as promoting e-payments and POS systems.

3. Upgrading Human Capital and Firm Capabilities:

   • Invest in education, vocational training, and on-the-job training.
   • Promote quality standards in production and service delivery.
   • Encourage gender equality by mandating equal pay and improving childcare support.

Conclusion

The Egypt Economic Monitor highlights that while Egypt had made progress in macroeconomic stabilization and public financial management, structural challenges in productivity and job creation remained. The COVID-19 crisis exacerbated these issues, leading to economic contraction, rising unemployment, and external account pressures. To recover and transform, Egypt needs to sustain macroeconomic stability, enhance the business environment, and invest in human capital. These reforms are crucial for boosting productivity, creating better employment opportunities, and improving the country's resilience against future shocks.