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New figures show Egyptian economy is collapsing

October 22, 2014 at 12:37 pm

There has been a major decline in the Egyptian economy since the coup in July 2013, the economic reporter Mamdouh Al-Wali has revealed.

In a blog on Facebook, Al-Wali said that the most significant indicator of the losses incurred is the decline in the number of new companies. According to a report, issued by the Ministry of Planning, which outlines economic and social performance indices for the fiscal year 2013/2014, the first year after the coup, the number of new companies set up was 8,245 compared to 8,946 during the previous year; an eight per cent reduction.

The number of companies that expanded during that year was 1,303 compared to 1,349 companies during the President Mohamed Morsi’s time in power.

The capital of companies formed or expanded under the coup was 44 billion Egyptian pounds ($6.15 billion) compared to 58 billion Egyptian pounds ($8.11 billion) for companies set up or expanded during the Morsi era.

The rise in the deficit

Al-Wali said that the second indicator is the rise in the deficit despite the grants provided by Gulf states.

According to the report, the total deficit in the budget of the first year after the coup was 252.3 billion Egyptian pounds ($35.24 billion) compared to 239.7 billion Egyptian pounds ($33.51 billion) during the previous year. Therefore, the deficit increased by 5.3 per cent.

The analyst said that it is strange for the deficit to rise despite the fact that President Abdel Fatah Al-Sisi’s government received grants that totalled 98.5 billion Egyptian pounds ($13.77 billion), from Saudi Arabia, the United Arab Emirates and Kuwait. Grants totalling 5.2 billion Egyptian pounds ($0.73 billion) were received by Morsi’s government.

The increase in foreign debt

During Al-Sisi’s first year in power, foreign debt rose by $2.834 billion and reached $46 billion. This, Al-Wali explained, this was despite the fact that the coup authorities receive aid from the Gulf totalling $17.9 billion; $11.9 billion in financial and material aid and $6 billion in the form of deposits with the Central Bank.

Al-Wali stressed that the cost of servicing domestic and foreign debt rose to 61 billion Egyptian pounds ($8.53 billion), pointing to the Ministry of Planning’s report which confirmed the rise of 256 billion Egyptian pounds ($35.79 billion) in government debt during the first year of the coup. Foreign debt also increased by about $2.9 billion when compared to the previous year.

This, he explained, resulted in increasing the cost of servicing public domestic and foreign debt by approximately 61 billion Egyptian pounds ($8.53 billion), increasing it to 279 billion Egyptian pounds ($39 billion) compared with 218 billion Egyptian pounds ($30.48 billion) during Morsi’s time in power.

As for the other indicators, Al-Wali said: “The economic recession started impacting the value of the Egyptian pound forcing it down compared to foreign currencies.”

He added that according to the ministry’s report, at the end of Al-Sisi’s first year in power the Egyptian pound’s exchange rate against the dollar was 7.18 Egyptian pounds to the dollar compared with 7.01 at the end of Morsi’s tenure.

The Euro rate of exchange rose from 9.18 Egyptian pounds to 9.77 Egyptian pounds, an increase of 6.4 per cent. The same applies to the cost of Sterling whose rate of exchange rose from 10.77 Egyptian pounds to 12.22 Egyptian pounds, a rise of 13.5 per cent.

Al-Wali added that the rate of inflation rose from 6.1 per cent to 10.2 per cent, according to the report for the fiscal year 2013/2014.

As the coup’s first fiscal year ended in June, the figures do not take into account the rise in the prices of petroleum products, such as petrol, diesel, kerosene, cooking gas and natural gas. Nor do they take into consideration the rise in passenger travel tariffs or other commodities due to the impact of the rise in fuel costs.

The reduction in exports

According to the Ministry of Planning’s report exports during the first year of the coup were approximately $869 million lower than those in the previous year, a decline of about 3.2 per cent.

In the meantime, imports rose by 2.8 per cent leading to a rise in the trade deficit of about 10 per cent to $33.7 billion.

It has been widely reported that crude oil and petroleum products to the value of $10 billion were given as grants from the Gulf countries; had these been taken into consideration in the final accounts the trade deficit would have risen to about $44 billion.

The decline in tourism

The report of economic and social performance indices said the number of tourists arriving in Egypt during the first year following the coup declined by 35 per cent compared to the numbers during Morsi’s time in government. The number reduced from more than 12 million tourists to under eight million.

The number of nights tourists spent in Egypt reduced by 49 per cent to less than 73 million compared with 142 million nights in the previous year. This grossly impacted the tourism industry’s overall income which declined 48 per cent to $5.1 billion compared to $9.8 billion prior to the coup.

On the other hand, payments by Egyptians travelling abroad for tourism rose from $2.9 billion under Morsi to more than $3 billion during the first year of the coup; a four per cent rise.

The decline in petroleum and natural gas production

Following the coup, there was a fall of about 110,000 tonnes in the production of petroleum products. During this period, consumption of petroleum products increased by five per cent. The increase applies to petrol, diesel, diesel oil, kerosene and cooking gas compared to Morsi’s time. The price of diesel shot up after it was used to fuel power generators following a reduction in the availability of gas. Since January 2014, the production of 90-octane petrol was stopped altogether while consumption of 95-octane petrol reduced by approximately 67 per cent.

The overall outcome was the increase in the gap between production and consumption of petroleum products from 1.1 million tonnes under Morsi to 2.9 million tonnes during Al-Sisi’s first year in power, representing an increase of about 127 per cent in the deficit in one year.

Natural gas production lowered by 11 per cent, according to the report; 39.2 million tonnes compared with 44.2 million tonnes previously.

The reduction in production led to a decline in consumption by about four per cent during the first year of the coup. There has also been a reduction in the amounts destined to be sent to cement, steel and fertiliser factories as well as to power generators during power cuts.

In view of this, the quantities of natural gas available for export declined from five million tonnes during Morsi’s time to 1.6 million tonnes during the coup. It is unlikely that any exports will take place during the coup government’s second year in power. Importing natural gas is expected to begin in December.

Electricity cuts

Power production increased during Morsi’s government, Al-Wali explained. According to the ministry’s report, electricity production during the first year of the coup was about 3.4 billion kilowatt hours. During Morsi’s tenure, electricity production reached 7.1 billion kilowatt hours.

Following the coup, electricity consumption increased by 1.8 per cent. The reduced production and increased consumption lead to power cuts which occurred in spite of the government’s policy to divert natural gas supplies from factories to power plants.

The growth in bank loans

Credit facilities increased by about 38.7 Egyptian billion pounds ($5.41 billion) in banks other than the Central Bank in the first year of the coup.

Al-Wali drew attention to the fact that most of the credit facilities under Morsi were directed towards the private sector and not towards government institutions when the private sector’s share was 40.2 billion Egyptian pounds ($5.62 billion).

Source: Rassd, 18 October, 2014

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