Egypt’s economy over three years of turmoil

Doaa Farid
10 Min Read
A group of protestors gathering around army soldiers in January 2011 (AFP Photo)
A group of protestors gathering around army soldiers in January 2011 (AFP Photo)
A group of protestors gathering around army soldiers in January 2011
(AFP Photo)

Since the 25 January Revolution, Egypt’s economy has been trying to get back to normal levels, but has faced obstacles presented by the general lack of security in the country. The economy has passed through six different governments since 2011, each with its own challenges and visions. Daily News Egypt takes a closer look to examine the economic situation in each phase.

Before the 25 January Revolution, Egypt’s total investments were 16.4% of GDP in the fiscal year (FY) 2010/2011. The figure dropped, however, by nearly 2% to 14.2% of GDP in FY 2012/2013, according to World Bank figures.

Under the 30-year rule of former president Hosni Mubarak, steps were taken for some economic reform measures to foster private sector-driven economic growth. These steps included allowing for the privatisation of public entities.

Egypt’s GDP growth registered 5.3% in FY 2009/2010 up from 4.7% in FY 2008/2009. The inflation rate marked 12.8% in 2010, while foreign reserves stood at around $36bn on the eve of the revolution.

Meanwhile, the economic climate has dramatically changed post-revolution, with Egypt now listed among seven of the most vulnerable economies in the Middle East and North Africa (MENA) region. Egypt now lies alongside Tunisia, Iran, Lebanon, Jordan, Yemen, and Libya in the World Bank’s economic report on the region issued in February 2014.


 Photo courtesy of Ministry of Finance
Photo courtesy of Ministry of Finance

General Tantawi era (February 2011-mid 2012)

Following the ouster of Mubarak in February 2011, the Supreme Council of Armed Forces (SCAF), headed by military chief Mohamed Tantawi, took over.

Economic activities gradually deteriorated following the revolution, particularly in the tourism sector. This was deemed one of the main, and safest, sources of income and employment in the country, providing foreign direct investments (FDI), economic growth and foreign reserves.

In FY 2010/2011, the GDP growth recorded less than 2%, while the net international foreign reserves slumped to $14bn, contributing to a widening budget deficit and increasing internal and external debt.

The unemployment levels rose from 9% in 2010 to 13% in 2012, according to figures from the country’s statistics agency Central Agency for Public Mobilization and Statistics (CAPMAS).


Photo courtesy of Ministry of Finance
Photo courtesy of Ministry of Finance

Mohamed Morsi era (June 2012-June 2013)

After a long transition period of political and economic uncertainties and clashes between security forces and “revolutionaries”, Egypt’s first post-revolution presidential elections took place in May 2012. Muslim Brotherhood leader Mohamed Morsi won against Mubarak’s last prime minister Ahmed Shafiq.

The year-long leadership of president Morsi witnessed a continuous depreciation of the Egyptian pound, foreign reserves and revenues of major sectors such as tourism. The Egyptian pound reached EGP 7.6 on the black market, whilst coming in at EGP 7.02 on the official market.

Since Morsi’s inauguration, Qatar alone deposited $5bn into Egypt, including a $1bn grant, with a further $3bn pledged to Egyptian treasury bonds at an expected rate of interest of 3.5%. Saudi Arabia and Turkey deposited $1bn each, with Turkey announcing an increase to its credit line by $250m. Libya, on the other hand, deposited $2bn. All this foreign aid bolstered foreign currency reserves to $16.04bn.

Low foreign currency reserves caused Egypt to struggle to purchase basic imported commodities, including wheat and fuel. The world’s largest wheat importers, Egypt was forced to cut back on purchases of the grain under Morsi, and to rely instead more on the domestic harvest.

During Morsi’s period, the number of people living below the poverty line increased to 26.3% of the population in FY 2012/2013, compared to 25.2% in FY 2010/2011.

Egypt’s budget deficit hit EGP 205bn in June 2013, representing 11.8% of the country’s GDP in the FY 2012/13, reported the finance ministry in the same month.


Post-Morsi era, interim government (July 2013-May 2014)

Nationwide protests occurred on 30 June 2013, demanding the ouster of Morsi from power due to failing to meet their political, economic and social expectations. Then defence minister and army chief, General Abdel Fattah Al-Sisi, announced the president’s removal from office on 3 July.

After the ouster, the interim government tried to create positive economic signs, expecting the budget deficit to reach 9.1% of GDP in the budget for FY 2013/2014. This accounted for approximately EGP 186bn, a fall from the EGP 204.9bn recorded in the first 11 months of FY 2012/2013.

In that regard, the government announced two economic stimulus packages. The first package, with a value of EGP 29.6bn, was announced in August 2013 and focused on infrastructure-related projects.

In December, the government announced a second stimulus package, valued at EGP 30bn funded by the UAE, of which EGP 20bn would be directed to development projects. The remaining EGP 10bn, provided by the government, was given to financing the minimum income system and social security programmes.

Both stimulus packages aimed to boost the economic growth rate to 3.5% by the end of the FY 2013/2014 and reduce the budget deficit to 10% of GDP.

Saudi Arabia, the UAE and Kuwait pledged a total aid of $12bn in July 2013 in support of the government, to help the country boost its foreign reserves and meet its import needs.

However, in March 2014, Minister of Finance Hany Kadry Dimian modified the government’s hopes. He also announced that the budget deficit was expected to register between 11% and 12% of GDP by the end of FY 2013/2014. The growth rate was set by him to record 2% to 2.5% of GDP.

The annual consumer inflation witnessed a slight decrease in the first half of the year before Al-Sisi’s rule, from 12.2% in January to 11.04% in July 2014, according to CAPMAS figures

After minimal increases and decreases, the net international foreign reserves registered $17.28bn at the end of May 2014, according to Central Bank of Egypt (CBE) figures.


President Abdel Fattah Al-Sisi (AFP Photo)
President Abdel Fattah Al-Sisi
(AFP Photo)

Economic landscape under Al-Sisi

The government announced in July that the FY 2014/2015 budget aims to decrease the deficit to 10% of GDP, compared to the previous year’s 12% of GDP deficit. The government is also targeting a 90% reduction of GDP foreign and domestic debt, as well as a 14% surge in investment and 3.2% economic growth.

The government added that it is aiming to reduce the unemployment rate to 13% during the same year, compared to 13.3% in FY 2013/2014. It attributes this slow growth to the decline in several sectors such as tourism, industry and agriculture. The government expects the average annual growth in citizen income to be EGP 100, increasing from an average annual salary of EGP 19,200 to EGP 19,300, a monthly increase of EGP 8.3.

Egypt’s government is also currently working on the launch of a new economic stimulus package to boost the sectors necessary for economic development. These include the industrial, housing and construction, communication and tourism sectors, the Ministry of Finance’s July bulletin stated.

The new package aims to revitalise and expand the activities of the private sector through removing the “bottlenecks” facing economic key sectors, the report said.

The report noted that the second half of FY 2014/2015 is expected to witness a “development surge” as a result of implementing the two stimuli packages announced in 2013.

The 2014/2015 budget was approved by President Abdel Fattah Al-Sisi after making adjustments to the draft referred to the presidency on the first day of the presidential elections. In the draft, the targeted revenues were approximately EGP 517bn, while the expenditures were EGP 807bn; however, after amending it, revenues were set at EGP 549bn and total expenditures were set at EGP 789bn.

The adjustments Al-Sisi made included reducing petroleum subsidies to EGP 100.2bn from EGP 104bn noted in the draft, compared to EGP 134bn allocated in the FY 2013/2014 budget. He also called for decreasing electricity subsidy allocations from EGP 33bn in the draft to EGP 27.2bn, compared to approximately EGP 18bn in last year’s budget.

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