Egypt

THE military coup that toppled Hosni Mubarak four years ago had adversely affected the economy, discouraging investors and slashing economic growth to below 2pc in 2010-11. Egypt’s foreign currency reserves fell to less than half of the pre-January 2011 level, budget deficit reached 14pc of GDP and overall debt as a result of accumulated deficits exceeded the country’s economic output.

Worsening state finances have seen debts mounting to billions of dollars. The government debt reached 89.2pc of GDP and overall debt to GDP ratio crossed 100pc. The World Bank has estimated external debt stocks at $44.4bn with long- term external debt outstanding and disbursed at $40.2bn currently.

The economic weakness made it politically difficult for the government to address the problems that contribute to a potential solvency crisis. Reducing poverty, addressing corruption or lowering barriers for competitors are critical for achieving economic prosperity. Necessary reforms have imposed hardship on a population that is already experiencing economic pain.

Roughly 45pc of Egyptians live on less than two-dollars a day. The Egyptian President Abdel Fattah el-Sisi has stressed the need for the realisation of investors’ project to speed up economic recovery. Egypt needs $300bn in investment to recover and develop the economy.

A comprehensive reform plan has been launched with a goal to increase the growth rate to 7pc annually for ten consecutive years. Economic reforms already implemented have started yielding results. The government is making efforts to cut the costs of investments and create an economic and investment- friendly environment. Growth accelerated to more than 5pc in this fiscal year’s first half to December 2014. Investment is gradually recovering. The government is targeting 4.3pc economic growth during 2015-16. Egypt aims to reach a 6pc growth over the next five years.

The country’s draft budget for the next fiscal year envisages 9.5-10pc overall deficit and state/public debt of not more than 91-92pc of GDP. The budget deficit in 2013-2014 improved to 12.8pc of GDP, compared with 13.7pc a year earlier. It expects the government will achieve targets through continuing structural fiscal reforms that include rearranging priorities for state spending while to broadening tax base and continuing with cuts in energy subsidies. The government forecasts the deficit dropping from 10pc of GDP in 2014-15 to 8.7pc of GDP by 2017-18.

The government is trying to improve social safety net by expanding its cash transfer system to the poorest members of society. It aims to reach an extra 0.5m households this year, further expanding to another 1m households over the next two years. The country needs serious efforts to reduce poverty. Around 60pc of the Egyptian population lives on less than $4/day, according to the World Bank.

Egypt has recently secured billions of dollars in investment commitments at the Egypt Economic Development Conference which was attended by Arab and international investors and businessmen. About $175.2bn in agreements, contracts and memoranda of understanding had were signed at the March summit. The Ministry of Development is looking for sustainable projects that could create 10m jobs over the next five years and contribute to increasing production.

Egypt had lagged in the repayment of debts to oil and gas firms due to four years of political instability. It plans to repay all arrears to foreign oil companies by mid-2016. It already repaid $3.2bn of $6bn total outstanding debt.

Libya

Libya

At the beginning of the 21st century, oil and natural gas together accounted for almost three-fourths of Libya’s national income and nearly all of the country’s export earnings. Oil revenue was its main source of income while its per capita income was among the highest in Africa. However, everything has changed following events leading to Qadhafi’s ouster and current political turmoil.

While there was some recovery in 2012 when the war ended and oil production came back faster than expected, the economy has not yet reached a point of sustained longer term economic growth.

In 2013 the economy just got back to what it was prior to the mass uprising. Since then Libya had deteriorated economically and politically.

Oil production dropped from about 1.6mbpd before the civil war to 150,000bpd, a loss of about $5bn in revenue from exports. The country today remains in a deeply dangerous situation. Disruptions to oil production have become so severe that analysts fear the continuation of current situation could break Libya in next two years. GDP per capita in 2014 has come down to $7942.

Libya is rapidly joining the ranks of Africa’s better-known failed states. According to the World Bank’s resident representative to Libya, GDP growth has fallen by almost 30pc last year, mostly driven by a sharp decline in oil production down 51pc and oil exports down 75pc in 2014 from 2013.

Reuters reports that Libya’s official parliament in June 2014 approved the new budget, worth $41.6bn, based on projections of $19.1bn in oil revenue and an annual oil production of 600,000bpd at $100/barrel and a budget deficit of $8bn was forecast for 2014. Analysts expect that globally lower oil prices and steady decline in local oil production have adversely affected the budget projections.

Economic situation is grim. All major infrastructure projects, which were in progress when the war erupted have been suspended or looted as foreign investors have left the country. Libya’s state-run oil corporation has declared 11 oil fields in the country non-operational which makes up 30pc of the overall number of fields in Libya. The remaining ones are not all operational and a number of them have either closed for maintenance or have remained closed since the anti-Gadhafi uprising. Theft, looting, sabotage and destruction of the oil fields have been on the rise. Libya now has two governments, two parliaments and two armies. While both sides are quarreling and fighting, the economy is reeling.

Published in Dawn, Economic & Business, April 13th, 2015

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