CAIRO: Protests in Egypt and Tunisia will hurt their economies but neither country has asked for IMF funding to deal with the impact to their budgets, a senior International Monetary Fund official said on Wednesday.
Masood Ahmed, IMF Director for the Middle East, told reporters that the biggest impact to Egypt and Tunisia’s economies will come from a drop in tourism and foreign direct investment, Reuters reported.
He said it was hard to know how quickly their economies will mend because it depended on how quickly tourism and investment rebounded.
According to AFP, Ahmed said Tunisia can expect reasonable economic growth this year but Egypt’s future is less certain.
"The Tunisian authorities themselves have said they expect growth in the Tunisian economy this year to be between 2 and 3 percent," he said, according to AFP. "And from our point of view, at this stage that seems like a very reasonable forecast," Ahmed told reporters.
"There are strengths in the Tunisian economy. And some of these strengths are what generated the relative high aggregate growth of the economy, even if that growth is not shared as broadly as it could be."
The situation is less sure in Egypt. "Events are still unfolding in Egypt, even more so than in Tunisia," he said. "It’s hard for anyone to make firm projections exactly on what will be the magnitude of the economic impact."
The IMF has expressed readiness to help Egypt and Tunisia deal with the economic impacts of the recent political turmoil, according to the Wall Street Journal.
"There will be a hit on growth," Ahmed said with respect to the IMF’s outlook on Egypt.
Egypt’s Finance Minister Samir Radwan expected growth for the full year to clock in at 3.5 percent. He also saw an increase in deficit to more than 8 percent of GDP.
Ahmed cited challenges facing Egypt’s economy including rising food and fuel inflation as we as unemployment, which has always been high, namely among the youth at 25 percent, and could worsen this year with lower economic activity.
However, the political change could have potential long-term benefits if Egypt and Tunisia carry out needed economic reforms, Ahmed said.
He stressed in Egypt’s case the need for the government to help the poorest. "There’s a need for better-targeted (subsidies) in contrast to general subsidies that benefit to rich and poor alike."
One of the lessons from recent unrest in the Middle East is that governments should focus much more on inclusive growth and give better-targeted help to poorer households, Ahmed told IMF Survey magazine.
In the long run, Egypt could be able to better exploit its potential to achieve higher standards of living and employment for all sections of its population, he told IMF Survey, citing the country’s inherent strengths: a dynamic and young population, a large domestic market, access to key markets, a privileged geographic position, a strong financial sector, and a comfortable level of reserves.
Authorities in the Middle East region have announced an increase in fiscal spending, in some cases as large as 3 percent of GDP, he said, including higher food and fuel subsidies, social transfers, including to the unemployed, tax reductions on staple commodities, higher funding for private housing and an expansion of civil service employment or salaries.
In his interview, Ahmed said the IMF can help Egypt by providing the technical and policy advice to support authorities confront their short- and medium-term challenges and bring about more inclusive growth, based on its global experience.
“If the Egyptian authorities decide that financial support would also be useful, the fund would be ready to help, based on an assessment of the financial needs.”
In an interview with Dream TV’s “Ashera Masa’an,” commenting on financial support from global institutions, Radwan had said that he has a plan for Egypt, alluding to the fact that authorities are not planning to ask for funding at the moment.
Financial markets have been feeling the effects of the unrest since early January with the events in Tunisia. “CDS bond spreads throughout the Middle East and North Africa region have widened and equity markets have fallen somewhat. These market movements reflect a tightening of financing conditions for sovereigns as well as the corporate sector, which could affect economic activity this year. The incipient recovery in domestic bank credit is likely to remain sluggish, a natural response of banks during political turmoil.” –With agencies
