Egypt economy hardest hit in MENA, experts say

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CAIRO: Egypt’s economy is the hardest hit following the impact of political unrest in the Middle East and North Africa (MENA) region, according to a Fitch Ratings report.

Official data published since the uprisings began shows “mixed pictures” for the countries that were directly affected, the ratings agency said.

Fitch downgraded three countries for this year: Tunisia, along with Egypt, was downgraded by one notch, while Bahrain was downgraded by three.

An expectation of short and long-term economic damage was a contributory factor to these downgrades.

The Tunisians, which started their revolution against Zine El-Abidine Ben Ali in December, were quickly followed by their Egyptian neighbors on Jan. 25, when an 18-day popular revolt overthrew Hosni Mubarak and his regime.

Shortly after, the ongoing uprisings in Libya, Syria, Yemen and Bahrain kicked off.

“Egypt appears to be the hardest hit, with Tunisia somewhat less affected, while Bahrain’s public and external finances have improved compared to Fitch’s previous forecasts due to the increase in oil prices,” said Richard Fox, Fitch’s head of Middle East and Africa Sovereign Ratings group.

According to some economic experts, in order to speed up recovery, foreign investments, which have shied away from Egypt due to the political instability, must be encouraged to return.

“If foreign investors come back in to Egypt, we will pass this period,” Ola El-Khawaga, economics professor at Cairo University, told Daily News Egypt.

In the ratings report, Fox pointed out that "changing political realities will have implications for economic policy and will keep ratings under negative pressure, although so far there have been no signs of any radical departure from previously sound policy regimes.”

Since inflation is a bigger problem in Egypt — rising to 11.5 percent in the year to March — than in Tunisia or Bahrain, the report found that Egypt’s fiscal position will decrease.

Bahrain, however, will cope best out of the three countries with a promised $1 billion, which is part of an annual GCC assistance funding as well as increased oil prices due to the country’s recent political and social unrest.

As a result, Egypt’s budget deficit is approaching 10 percent of GDP in 2011 with the debt ratio also rising slightly.

The report attributed the increase in inflation to “rising food and fuel prices and exchange rate weakness.”

The recent uprising slammed several sectors of the Egyptian economy, including tourism. However, while it was the hardest it sector of the economy, it is also the fastest to recover, according to experts.

“It’s the tourism that usually rebounds quickly,” said Ayman Sami, head Advisor at Jones Lang LaSalle. “After Egypt saw terrorist attacks in the early 90s, for example, tourism was hit really hard but it bounced back quickly.”

In fact, the country’s tourism already started to pick up by March and more in April. But, sectors like telecom, agriculture, and real estate were and continue to be affected heavily, according to the rating’s report.

With the country’s two largest property developer, Talaat Moustafa Group and Palm Hills Development, and Ahmed Ezz, chairman of Ezz Steel, the nation’s steel tycoon all under investigation due to corruption allegations, the country’s real estate sector is struggling.

While the rating agency’s report points out that evidence found so far for 2011 is limited for Egypt, Tunisia, and Bahrain alike, there are enough facts to “suggest” Egypt’s the hardest hit economy due to the 7 percent decline in the country’s GDP for the first quarter of 2011.

The report also found that with foreign investment down, and official reserves falling by $6.6 billion, further falls are “likely until external revenue and financing recover.”

However, Fitch also foresees the “current account deficit (CAD) to be a manageable 3 percent of GDP, with remittances and Suez Canal receipts holding up, while reserve loss is likely to be mitigated in the second half by increased external borrowing from multilaterals.”

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