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SIGNPOST
Country reports upbeat despite circumstances
Directly following the September 11
attacks, the International Monetary Fund (IMF) forecast a bleak
future for Egypt’s economy. But in its latest country report,
released in late July, the IMF noted some positive fiscal and monetary
developments and offered a positive outlook for the coming fiscal
year. The report stated that the tourism sector, after falling by
more than half after September 2001, recovered “faster than
expected,” re-attaining pre-9/11 levels by June 2002.
Additionally, contrary to IMF forecasts released earlier this year,
“the current account showed only a small deficit of some $200
million in 2001/02, compared to estimates in January of a deficit
of $1.5-2 billion.” The overall trade deficit was also below
the level projected, at one percent of GDP. The key challenge in
the next year, the report indicated, will be fostering Egypt’s
economic recovery in the midst of “modest” global growth
and a slowdown in foreign direct investment. But, it continued,
tourism, commodity exports and increased investment in the energy
sector “should strengthen and underpin somewhat stronger growth
in consumer spending and a recovery in private capital spending.”
The report forecasts a 3.5- to 4-percent range in growth recovery
in 2002/03, up from 2 percent in 2001/02. The IMF further anticipates
a manageable balance of payments in the coming year, with a “significant
recovery” in imports, as growth picks up and foreign-currency
liquidity is improved. It also expects Egypt’s fiscal deficit
to decline to 5 percent of GDP in 2002/03.
Despite recent pressure on the dollar, which has partially subdued
black-market exchange rates, the report calls for the development
of “a unified and liquid exchange market,” in which the
rate is more responsive to market conditions. The IMF expressed
concern about the continued existence of a parallel currency market,
insisting that the government halt illegal transactions.
The report went on to praise last year’s currency devaluations,
stating that the 35-percent local-currency depreciation against
the dollar between mid-2000 and early-2002 led to an “improvement
in competitiveness... reflected in the strengthening of the trade
account.”
And, in keeping with past pronouncements, the IMF once again advised
Egypt to pick up the pace of privatization and reduce tariff and
non-tariff barriers to trade. It applauded the export law adopted
in June 2002 and the new economic zones law, which simplify administrative
procedures.
US embassy economic perspective
The July 2002 Economic Trends Egypt Report, an annual report published
by the US embassy on the state of the Egyptian economy, was also
– at least in some departments – upbeat. Despite concerns
about the balance-of-payments impact of September 11, the embassy’s
appraisal pointed to progress: “Egypt’s overall balance
of payments, while still in deficit, actually has improved over
the past year. The merchandise trade deficit improved dramatically
as imports, slowed by the recession and difficulty in obtaining
foreign exchange, fell more than exports.”
However, the report concluded, “the tourism fall-off, some
decrease in Suez Canal revenues, continuation of weak foreign-investment
flows and episodes of capital flight kept the entire balance in
the red.”
Eurasia Group launches Egypt report
Another, newly launched, Egypt country report, based on the Lehman
Brothers Eurasia Group Stability Index (LEGSI), concentrates more
on regional political issues than on the macroeconomy. According
to Jakovos Kypri, a Eurasia Group senior associate, the LEGSI is
“the latest tool in a growing range offered to businesses and
investors worried about political risk.” The index, Kypri said,
“supplements publicly available data with information from
450 analysts in the field, to identify threats to stability in 20
emerging markets.”
The new, monthly Egypt report, which rates the country in four “risk
areas” (government, security, society and economy), is the
Eurasia Group’s first foray into the Middle East. According
to Kypri, Egypt was chosen for the group’s first report in
the region “because of Egypt’s size and its role as a
shaper of opinion in the Middle East.”
He added that a report on Saudi Arabia would be launched soon, with
other Arab countries likely to follow.
Under the LEGSI system, countries are ranked on a scale from 0 to
100, with 100 representing the highest possible level of stability.
In the August 2002 report, Egypt scored 54 overall, which, according
to Kypri, “represents moderate stability, with functioning
governmental and economic organs, and a generally cohesive security
and social situation.”
Among the recent developments outlined in the report’s “Risks
& Forecast” section, local concerns “about the prospects
of sales taxes on banking services provoked an ‘explosion of
complaints’ among bankers after the Sales Tax Authority informed
accounting firms of its intention to apply a general sales tax to
banks with a 20-percent duty on certain, but as yet unspecified,
services.”
Eman Wahby
With additional reporting by Business Monthly staff
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