Egypt's economic reform passes test of Covid-19: study

CAIRO – 22 April 2021: The Egyptian economy has overcome the crisis of Covid-19, passing the test of its economic reform, according to a study by the Egyptian Center for Strategic Studies.

The budget of 2020/2021 is the largest in Egypt’s history at L.E. 2.2 trillion, which was set before the outbreak of the pandemic.

The study expects that the economy grows by 3.5-4 percent this fiscal year with a primary surplus in the budget, but bread subsidies and the increase in government investments will result in a fiscal deficit at 6.7%. It is still a good percentage and better than the expectation of many economic reports, especially that there are multiple internal sources that can finance the deficit, according to the study.

The study looked at three main elements in the Egyptian economy: subsidizing petroleum and wheat, as well as public investments.

Egypt has come a long way in terms of lifting subsidies on petroleum, but L.E. 28.1 billion are dedicated to petroleum subsidies in the budget, compared to L.E. 52.9 billion the year before. The country is expected to achieve cost savings of $5 billion at the level of petroleum products.

The cost of subsidizing wheat will increase to 11 percent of spending due to thei ncrease of the price of wheat and a Russian temporary tax, one of the main exporters of wheat to Egu[t.Public investments will increase by 60% in the first half of the fiscal year 2020/2021 to reach 16-18 percent of the public spending.  That is about L.E. 20 billion more than the plan.

Government investments have increased to 16-18 percent of public spending, compared to 14 percent the year before. These investments helped alleviate unemployment to 7.2 percent in the fourth quarter of 2020, decreasing from its high in the second quarter of the same year at 9.6 percent. The investments are expected to support gross domestic product to reach 3.5-4 percent in 2020/2021.