CAIRO: As officials and analysts have rushed to reassure investors of Egypt’s stability and relative isolation from the financial crisis, demand for hard predictions has often outstripped supply.
Such was the case near the end of a panel discussion hosted by the American University in Cairo (AUC) on Saturday. While some panelists argued the crisis and an accompanying global recession could complicate the problems of inflation, increase public debt and hamper growth in Egypt, it is impossible to make too many useful predictions, according to economics professor Galal Amin.
“After all, it all depends on what happens abroad, said Amin. “Neither we nor they know exactly what is going to happen.
The panel comprised six members of AUC’s economics faculty, gathered to discuss the rippling of a worldwide recession into Egypt’s economy.
The issue of a slowdown in Egypt is controversial, said economics professor Ahmed Kamaly. “From the government side we hear there is no effect of this crisis on the Egyptian economy, yet he has heard “distinguished professors say the country will slide into recession, with growth sinking as low as 2 or 3 percent in coming years, he said.
While growth in Egypt could drop below six percent next year, the economy has witnessed “very little evidence of distress so far, Kamaly said. The stock exchange is the exception, having tumbled 53.9 percent since the end of 2007, compared with 43.9 percent in the rest of the world, he said.
The World Economic Outlook, published by the International Monetary Fund (IMF), recently predicted global growth will slip to 3.9 percent in 2008 and 3 percent in 2009.
As credit seizes up across the world and investors turn to safer havens for their cash, capital flows to emerging markets in general will ebb, Kamaly said. But Egypt should avoid the “painful adjustment this will breed in countries with big current account deficits and small international reserves, such as South Africa and Turkey, he said.
Egypt reported a current account surplus of $0.9 billion for the financial year 2007/2008, and its reserves stood at $35 billion at the end of September, according to state figures. Many analysts have forecast that Egypt’s current account will slip into a deficit by 2009, as the country imports more and sells less in slowing markets abroad.
State revenues will fall in coming years, as the global recession slows business, Kamaly said. Expenditures, however, are likely to remain stable, meaning the deficit will widen, worsening fiscal imbalances in the short term at least, he said.
Inflation will also remain a worry, particularly as the Egyptian pound depreciates, Kamaly said. But while the Central Bank of Egypt (CBE) is considering cutting interest rates, this could be “very dangerous in a climate of high inflation, he said. The CBE “should prize stability and avoid engaging in “lax monetary policy, he added.
But there are limits to how much anyone can foresee the long-term effects of the crisis in Egypt, said Amin. “We really cannot make any useful predictions, he said.
Cash-strapped tourists might come to Egypt as a cheaper alternative to Spain, for instance, offsetting other losses, he said. The full impact on the Suez Canal income and foreign investment are similarly convoluted, he said.
More important, he said, is fixing the country’s unemployment problem. Foreign investment does little in this measure, he said.
The unemployment rate was at 8.4 percent at the end of June, according to state statistics.
Many foreign investors merely add “short-term value to the economy here, added Professor Monal Baki, who said she is pleased about the prospect of some Gulf investors pulling out of Egypt. Such investments do not bring new technology or education, but do “elbow out Egyptian investors, she said.
As for recent arguments that the financial crisis heralds the death of capitalism, Amin added this: Economic historians have counted 20 economic “crises in the US since 1840, and over 100 in the world over the past 30 years, “and capitalism still has not collapsed.
