The Middle East and North Africa (MENA) region, just like the rest of the world, has been facing a series of economic constraints related to the COVID-19 pandemic.
In 2020, the region’s economy is estimated to have contracted by 3.8%, according to an April issue of the World Bank MENA Economic Update. The percentage is 1.3 percentage points higher than the World Bank had predicted in October 2020.
Although there is evidence that lockdowns and social distancing helped control the spread of the virus, the substantial borrowing that MENA governments had to bear to finance essential health and social protection measures generated a level of government debt that is unlikely to allow the economy to quickly return to pre-pandemic levels, the report suggests.
The region’s public debt is expected to rise 8 percentage points, from about 46% of the gross domestic product (GDP) in 2019 to 54% in 2021, while debt among MENA oil importers, such as Egypt, is expected to average about 93% of the GDP in 2021.
A positive spin for Egypt
While Egypt is in line with the World Bank’s regional forecast, the country’s projected performance is on a slightly positive note. The report showed a surplus primary balance despite higher debt levels that gripped much of the MENA region. With surplus expected to reach 0.6% of the GDP during FY 2021/2022, Egypt may have less need for short-term borrowing, unlike economies, including Morocco, Tunisia, Bahrain, and Oman.
The World Bank’s forecast goes in line with gross debt predictions by the International Monetary Fund (IMF). According to the IMF, Egypt’s gross debt will increase to 92.9% of the GDP in 2021, up from 90.2% in 2020. In 2017, the country recorded its highest debt ratio at 103% before having it gradually decrease to 92.5% in 2018 and 84.2% in 2019 as a result of the country’s ongoing economic reform.
On April 12th, the Central Bank of Egypt reported a 15% Year-on-Year increase in external debt, reaching $129.195 billion at the end of December 2020, compared to $112.67 billion in 2019.
As for the regional growth estimate, MENA countries are projected to be 6.4 percentage points lower than the pre-pandemic growth forecast published by the World Bank in October 2019, while the accumulated cost of the pandemic, in terms of GDP losses, will amount to $227 billion by the end of 2021.
In Egypt, growth is projected to decline from 3.6% in fiscal year (FY) 2019/2020 to 2.3% in FY 2020/2021, according to Egypt’s Economic Update issued by the World Bank in April 2021. The IMF, however, upgraded its economic growth projections for Egypt in fiscal year (FY) 2021/2022 to 5.7% and 2.5% in FY2020/2021, according to the IMF’s fiscal monitor report released on April 7th.
The pandemic’s economic impact has been felt in multiple sectors. In Morocco, Tunisia, Egypt, and Saudi Arabia, tourism and air traffic were 60% to 80% lower in February 2021 compared to February 2020.
Data on Purchasing Managers’ Index (PMI) for Egypt – with a PMI above 50 representing an expansion over the previous month and a PMI below 50 representing a contraction – have hovered around 50 since July 2020, suggesting the two economies have not rebounded from the sharp economic crisis in April 2020.
The economic impacts of the pandemic have been exceptionally hard in the MENA region as governments have had limited public health financing for decades. Egypt, for instance, spent only 5% or less of their government budget on health as of 2017, the World Bank indicates based on data from the World Health Organization.
Many MENA countries have either high positivity rates (when more than 5% of COVID-19 tests come back positive, according to the WHO) or do not even have reliable testing or fail to report it, says the World Bank. A case-in-point, Egypt is among three other countries in the region – Algeria, Syria, and Yemen – to have no data available indicating the number of COVID-19 tests per million inhabitants and the percentage of positive results per test, according to data from Worldmeter.
