CAIRO: Egypt’s economic growth for this fiscal year is expected to fall 2.5-4 percent, compared to last year’s 5.5-6 percent growth despite global financial turmoil, according to an International Monetary Fund (IMF) report.
The political and social unrest as well as the rise in global food and fuel prices are seen to be the two main developments that will significantly affect the economic outlook of the Middle East region this year, according to the IMF.
The region’s recent popular revolts were set off by Tunisia and Egypt’s revolutions, both of which toppled decades-long regimes.
However, while the uprisings were inspired by similar factors and are all calling for democracy, dignity, and fair distribution of public funds, each country is affected by the unrest in its own way.
According to the IMF “Spring 2011 Report,” which is part of their bi-annual report, the recent disruptions following the region’s uprisings will cause a decline of tourism and investment in Egypt, while enhancing growth for Gulf countries as a result of increasing oil prices.
Egypt, however, which witnessed an 18-day people’s revolt that began on January 25 and ended by toppling Hosni Mubarak’s three-decade old regime, has several options that it should consider in order to get through this difficult period, experts said.
“We have several options. We might have to withdraw from our Central Bank foreign currency reserves, which the country already had to do last month,” said Ola El-Khawaga, economics professor at Cairo University.
Because of the current challenges, El-Khawaga also says that the country needs to be working and producing faster than before.
“Our production wheel needs to start going faster, we need to work harder than before the revolution,” she said. “With good management, we will withstand this, assuming there is less corruption, and more transparency, we will be able to use our resources and take advantage of what we have as a country in order to boost our economy.”
She added, “We will be suffering for the next three years, but if foreign investors come in, and if better steps and policies are implemented, it will alleviate the suffering and we’ll pass this period; it will just take time.”
If Egypt’s economic growth is achieved after this period, however, different strategies will have to be implemented in order to maintain it.
“Even rapid economic growth as seen periodically in Tunisia and Egypt, cannot be sustained unless they create jobs for the rapidly growing labor force and are accompanied by social policies for the most vulnerable,” the IMF report said.
“For growth to be sustainable, it must be inclusive and broadly shared… not just captured by a privileged few.”
Unlike Egypt or Tunisia, countries in the Gulf, which rely mainly on oil exports, are seeing oil prices rise from $79 per barrel to $107 per barrel in light of recent events.
Consequently, according to the IMF, the increase in production volumes will lead to higher growth in 2011 and stronger “fiscal and external balances” in Gulf nations.
“For the GCC, growth is projected to reach 7.8 percent in 2011 as oil production expands to stabilize global oil supply in the face of supply disruptions elsewhere,” the report reads.
In fact, as a result, the IMF predicts the oil exporters’ combined external account surplus to increase from $172 billion to $378 billion (excluding Libya), and for the GCC from $136 billion to $304 billion.
However, the report stresses that while the recent uprisings may provide a “great opportunity” for laying new foundations, each country in the region will have to find its unique path to a more socially inclusive economy which should provide social protection for the vulnerable and strong alike, while helping all citizens realize their potential.
“Oil exporters should not lose sight of their longer-term challenges: achieving strong and sustainable inclusive growth to provide employment for the rapidly growing labor force, especially for the youth; better ?scal management; and further development of the financial system,” the report read.
The IMF highlighted high unemployment rates, especially among the youth — which is at 25-30 percent in Egypt and Tunisia.
“The popular uprisings, the subsequent downfall of governments in Tunisia and Egypt, and violent protests in a number of other MENAP oil importers have shaken the existing order across the region. With this change comes the challenge of putting economies back on track, but also the opportunity to turn to a path of more inclusive growth.”
Both countries will also see wider fiscal deficits.