(Photo by Sarah El Masry)
Egypt was listed among seven of the most vulnerable economies in the Middle East and North Africa (MENA) region, along with Tunisia, Iran, Lebanon, Jordan, Yemen and Libya, in the World Bank’s quarterly economic report on the region.
The recently published report stated that the ongoing tensions in the region have affected economic growth, public coffers, unemployment, and inflation rates.
“Short-term policy actions such as increasing public sector wages and subsidies, aimed at reducing social tensions, exacerbate the situation,” the report’s authors wrote.
In Egypt’s section in the report, World Bank economists wrote that the government’s two economic stimulus packages are seeking a short-term expansion of economy through increasing public investments and public sector wages.
Both stimulus packages aim to boost the economic growth rate to 3.5% by the end of the 2013/2014 fiscal year and reduce the budget deficit to 10% of GDP.
Despite these goals, the report said the real GDP growth rate is expected to remain weak in 2014 because of a low level of investment. Total investments dropped by 2%, reaching 14.2% of GDP in 2012/2013, which is a significant decline from 2010/2011 and 2011/2012 levels, when investments accounted for 16.4% and 17.1% of GDP.
Meanwhile, according to the report, foreign direct investment (FDI) has shown slight improvement. In the past three years, Egypt attracted a $9bn in FDI, recording $3bn in 2013 alone.
Pre-revolution, FDI inflows to Egypt were $9bn annually, according to the report.
With regard to unemployment rates, the World Bank reported that jobs have been affected by the slowing economic growth rate. Unemployment reached 13.4% of GDP in the third quarter of 2013, registering a 0.1% increase over the previous quarter.
“These figures include only registered workers and didn’t take into account the informal economy where unemployment is believed to be higher than the official rate,” the report said.
The World Bank concluded that the economy needs to grow by at least 6% in order to decrease unemployment rates by 2020.
“Egypt’s economic weakness in the main sectors have constrained job opportunities and caused a large portion of people to move to the informal sector with no access to social security benefits,” World Bank reported.
The number of people living below the poverty line increased to 26.3% of the population in 2012/2013 compared to 25.2% in 2010/2011.
The government’s expansionary fiscal policy and rising domestic debt over the last two years have left “little room” for private sector financing, according to the report. Food and fuel subsidies, occupying about 30% of government’s expenditures, are keeping the budget deficit increasing.
Egypt’s financial needs are still large despite $12bn in Gulf aid pledged after the ouster of former President Mohamed Morsi. In order to meet its import needs, the government has been using the international reserves and borrowing from public entities.
According to official data from the Central Agency for Public Mobilization and Statistics (CAPMAS), the domestic debt increased by 6% in the third quarter of 2013 and is estimated to reach 85% of GDP by the end of 2013/2014 fiscal year.
The World Bank forecasted that inflation rates will remain high at about 10.2% in the fiscal year 2013/2014 due to high food prices, lower production and expansionary policies. According to CAPMAS, annual inflation doubled from 4.7% in December 2012 to 11.7% in December 2013.
