The high level of uncertainty due to the political instability and violence in Egypt as well as the growing public deficits and sustainability of the subsidies scheme make economic prospects very uncertain for the North African country, according to a new update by the UN Economic Commission for Africa (ECA).
In its brief, entitled ‘The Economic Situation in Egypt in the Context of Political instability and a Risky Transition’, the Commission concluded on a number of potential scenarios, observing that three of them would also be highly sensitive to key exogenous factors.
The factors, according to ECA, include the evolution of the food and oil prices and their a direct impact on fiscal and balance-of-payments deficits, as well as the economic situation of the main partners of Egypt (Europe and the Gulf countries), with consequences on FDI, remittances and external demand.
Another factor is the deeper regional integration in Africa and among Arab countries, as Egypt is one of the most diversified economies of the continent with an important potential of trade and represents a regional place for financial services.
However, the Commission has also noted that a rapid improvement of the security situation in the Middle East and Libya could bring important peace dividends to the Egyptian economy.
“While the world’s eyes are focused on the political situation in Egypt, the ECA analysis shows a complex story.
“On the one hand, the country managed to sustain activities in most sectors, despite a number of challenges that led to shrinking exports. On the other hand, the political crisis is situated in a context of weak global demand that has negatively affected Egypt’s exports and Suez Canal revenues,” said the brief that has explored the country’s public finances, balance of services and social development.
It noted that unemployment appears critical in Egypt due to the political and economic uncertainties which have led to a reduction in income from tourism and a lack of visibility among investors, who have either postponed their projects or withdrawn their capital, depriving people of thousands of jobs.