CAIRO: With the US hit with a downgrade due to its debt crisis, the global economy is expected to feel its aftershock; however, for a country like Egypt, which has problems of its own, the effects are expected to be the least of its worries.
“Our problems are far larger than the US crisis or the global economic crisis,” Magda Kandil, executive director of the Egyptian Center for Economic Studies told Daily News Egypt.
Egypt must come up with strategies to alleviate the current economic slowdown in the country that began after the January 25 Revolution, she said.
“We need to fix our house first, then other parameters will come into play and we will be in a better position to encounter global risks.”
Sharing similar concerns, Hazem El-Beblawi, Egypt’s finance minister announced at a conference on Sunday that the country is not to be heavily impacted by the downgrade because Egypt is not “homogenized” into the global economy.
“The mission of Egypt’s government now is to reduce the budget deficit as well as solve the liquidity issue,” he said in a statement
According to Kandil, Egypt’s exports to the US will see another slowdown. As a result, America’s crisis will challenge Egypt’s ability to maintain its exports.
Egypt will have to reach beyond its usual trading partners and develop its own remedy to counteract the impact on its exports. Whether it is through reaching out to a different network of trading partners or increasing domestic demand, Egypt will have to change they way it does business.
“Emerging markets need to establish a capacity of their own, in the case of Egypt, the key is to revive domestic demand as well, which has suffered tremendously since the revolution,” Kandil added.
Since there are several other players in the market who are very much dependent on the health of the US economy, like China or Europe for example, they too will not be in “any position” to lead the global economy, said Kandil.
Eventually, the US dollar will begin to suffer in the world market and will start to lose value.
In order for global markets to keep up and remain competitive, they too will try to depreciate their currencies.
Egypt is among the markets that have done this numerous times before; according to Kandil, however, the Egyptian pound cannot withstand further depreciation.
“Depreciating the pound in the name of competitiveness is not good, we’ve already depreciated it,” she said. “The biggest challenge in Egypt is the inflation rate at this time, depreciating the pound would worsen the situation.”
On the other hand, the present-day status of the Egyptian pound is stable, Beblawi said.
The dollar currently trades at LE 5.953.
Currently, Egyptian rate of exports, especially agricultural products, is weak due to the E.coli scare which many speculated the country to be the source.
Moreover, tourism is weak as a result of the political turmoil as are foreign direct investments, if not “non-existent,” according to Kandil.
“These are already challenges on their own for the Central Bank, we shouldn’t add a further challenge by allowing the depreciation of our pound.”
Furthermore, Kandil explained that “a depreciating dollar could increase the cost of imports and increase inflationary pressures, it would also challenge or diminish the adequacy of Egypt’s reserves because most of our foreign currency reserves are in dollars.”
According to Angus Blair, head of research at Beltone Financial, the crisis hasn’t just added pressure to the pound, but to several other currencies.
Blair pointed out that Egypt’s current economic situation will not vary much, but can be affected through tourism, for example.
“If the market slows in Europe, you’ll have lower tourists coming to North Africa,” he said. “The region is as exposed to anywhere else, but nothing new will be affected in Egypt from this crisis.”
He added that Egyptian authorities would have to focus on “maximizing growth in Egypt and finding ways to alleviate the budget deficit.”
Currently, the US makes up 17 percent of global GDP.
In 2010, Egypt’s exports to the US were worth a total of LE 8,851 million, about $1.5 billion.
