The Global Terrorism Index (GTI) 2017, issued in late November, excluded Egypt from its list of the ten countries most affected by terrorism. Nine of the countries featured on last year’s list with the only change being the inclusion of Turkey and the exclusion of Egypt.
The Global Terrorism Index is a comprehensive study analysing the impact of terrorism on 163 countries and features a list placing them in the order of the extent to which they were impacted by terrorism.
The fifth edition of the report, which is produced by the Institute for Economics and Peace think tank, said that fatalities resulting from terrorism decreased by 13% to 25,673 in 2016 compared to peak deaths in 2014.
Egypt also witnessed a decline in terrorism last year, when 293 people were killed by terrorist acts, which is a 56% reduction compared to 2015.
The crash of a Russian passenger flight in Sinai was the highest-fatality attack in 2015, resulting in 224 fatalities. However, even if that attack was excluded, the reduction this year would still have been a substantial 33%.
The impact of terrorism, as measured by the GTI, includes not only deaths, but also the number of incidents, the number of wounded, and the level of property damage.
The global economic impact of terrorism was $84bn in 2016. This represents a 7% decline from the previous year and a 19% decline from the peak in 2014. Iraq ranked first on the Global Terrorism Index with a score of 10 points, making it the country most affected by terrorism on earth.
The index in Egypt decreased to 7.17 points in 2016 from 7.33 in 2015. The terrorism index in Egypt averaged 4.40 from 2002 until 2016, reaching an all-time high of 7.33 in 2015 and a record low of 0.04 in 2003.
There are a number of factors that influence the cost of terrorism for a country’s economy—the diverse nature of terrorism, the economic resilience of an economy, and security levels all play a role—so the economic impact of terrorism is varied.
Egyptian Tourism
Tourism is the industry most obviously vulnerable to the effects of terrorism.
Economies that are tourism-dependent such as Egypt suffer heavier economic losses when faced with security threats. After the suspicious Russian plane crash in October, the flights cancellations from the UK and Russia, together with a drop in hotel bookings, the Egyptian government bore an estimated $280m per month.
The tourism industry incurred historically low reserves of $16.4bn at the end of October, barely enough to cover three months of imports.
In Egypt the increase in terrorism has been directly linked to the political unrest following the 25 January revolution. In the two years preceding the Arab Spring, there was only a single death due to terrorism in Egypt.
In 2016, there was only one attack targetting tourists which resulted in no casualties when the Islamic State (IS) terrorist group’s affiliate in Sinai opened fire on a bus carrying Israeli tourists in Giza.
Suspicions that the Russian plane was downed by a bomb planted by terrorists is a likely cause of Egypt’s struggling tourism industry which has been damaged by the turmoil experienced since the 2011 revolt that toppled former president Hosni Mubarak.
Egypt’s Red Sea resort towns, of which Sharm El-Sheikh is the largest, had been the remaining hope for an industry that was plagued with disastrous losses over the past four years.
Egyptian authorities had succeeded in isolating Sharm El-Sheikh, at the southern tip of Sinai, from the violence in the northern part of the peninsula. As a result, the town continued to receive thousands of tourists.
During the BRICS summit in China, President Abdel Fattah Al-Sisi stated that Egypt has been dealing with its economic crisis, in spite of increased costs of terrorism.
He added that the country’s GDP jumped to 4.3% in the fiscal year (FY) 2016/2017, with the volume of foreign reserves up to $36bn.
The GDP in Egypt was worth $336.3bn in 2016. The GDP value of Egypt represents 0.54% of the world economy. The average Egyptian GDP from 1960 until 2016 was $73.84bn, reaching an all-time high in 2016.
Economic Reform Programme
Egypt has adopted an intensive economic reform programme, in cooperation with the International Monetary Fund (IMF), with the aim of obtaining a $12bn loan over three years. The programme is divided into three basic stages, each relevant to certain effects on the labour, investment, societal, and private sectors.
The first stage aims at economic stability through decreasing inflation rates and the budget deficit in both the local and foreign balances. Therefore, this stage adopted a number of policies to reduce the public expenditure through various programmes, such as employment policies which aim at increasing the rate of wage growth, and through financial policies which attempt to ration government expenditure in the service sector (health and education) and to reduce the subsidy to total expenditure ratio. These policies also aim at improving the public revenues depending on indirect taxation.
The second stage aims at realising economic growth through a number of policies aimed at transferring public expenditure from service sectors to productive sectors and from consumption to investment, by introducing a change in the relative prices of goods and services to the benefit of tradable goods.
The third stage includes policies which aim at realising improvements in the rate of growth of GDP, such as trade liberalisation policies, reduction of the government’s role in economic activities, improvement in the money and capital markets, the establishment of a free pricing system, the encouragement of the market economic system, integration with the external world, and the improvement of human capacity through developing an incentive system.
The policies in the first stage are characterised by a recessional effect occurring immediately, given that most of these policies imply procedural policies and as soon as they are undertaken, their effects occur.
Therefore, their social impact occurs in the short-run. As for the expansionist effects of the second stage of policies, it is expected that these policies will occur after a relatively longer period of time. This is due to the significant amount of financial resources needed for this group of policies, the presence of some problems related to the inflexibility of the productive systems, the need for new laws and regulations, and the need for highly skilled personnel to be available.
The third main point, in order to understand the nature of the economic programme’s social impact, is the difference in the degree of intensity from one country to another, according to several factors such as the size of population, the burden of foreign debt, unemployment rate, dependency rate, and the percentage of those who live below the poverty line.
IMF and World Bank praise Egypt’s economic reform
World Bank President Jim Yong Kim said that Egypt’s economic reform programme is moving on the right track, at a press conference on the sidelines of the IMF and World Bank annual meeting held in October.
Kim added that as a result of the economic reforms, especially the step of reducing subsidies, Egypt’s government implicitly saved about $13bn for low-income citizens.
Kim stressed that the reforms made investors more confident in the Egyptian economy.
Similarly, IMF Mission Chief to Egypt Subir Lall said that the performance of the Egyptian economic programme has started well and that the authorities are moving in the correct path to implement it. He added that inflation has begun declining and is on its way to being in the single-digit region.
Moreover, Lall said that the next stages will witness a decline in Egypt’s debt level, pointing out that achieving further growth will create more jobs.
Addressing the 23rd Annual Arab Banking Conference held in late November, IMF director for the Middle East and central Asia department, Jihad Azour, said Egypt has achieved notable financial stability and boosted its investment climate.
“The timetable on the next round of subsidy cuts will be left to the government’s discretion,” Azour previously said in October.
Azour further stressed that the fund is now discussing that timetable with the Egyptian cabinet.
The World Bank expects that Egypt’s budget deficit will decline to 8.8% of its GDP in FY 2017/18.
Meanwhile, Egypt’s GDP growth is predicted to stand at 4.5% in FY 2017/18 and to grow gradually to reach 5.3% by 2019, the World Bank further noted.
In the same context, the World Bank said that inflation will decrease to 23.3% this FY and to 22.1% in FY 2018/19. It is expected to fall to 14% by 2019.
However, the bank warned against slowing down the pace of economic reforms so as not to affect Egypt’s credit ability in repaying international debts.
