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SIGNPOST One thumb up on economy A new report on Egypt entitled “The recession shows its age,” released on January 19 by local finance house EFG-Hermes, is cautiously optimistic about the country’s economic prospects this year. “Leading growth indicators, including non-oil import growth and demand for loans in the July-September 2002 quarter suggest that the Egyptian economy is over the worst of the aftershock resulting from the September 11 [2001] attacks,” the report states. The country’s current account has proved more resilient than expected, with a healthy balance being maintained in the 15 months to September 2002. Monthly tourism receipts, meanwhile, have recovered to the levels seen a year earlier. “What has really surprised, however, is an unexplained FX inflow into the financial system in July-September 2002.” The author’s analysis: “We think this is either a reflection of increased inflows of Gulf tourists during the summer whose spending does not show up in the current account statistics or simply foreign currency cash coming out of the ‘mattress’ and going back into the banking system.” The report, however, predicts grim effects of an Iraq war on Egypt’s economy. Such a conflict “would induce another shock to the current account balance, similar if not worse than September 11, as a result of both reduced exports to Iraq and a decline in tourism. Unless the authorities were able and willing to secure external funding and/or draw down on central bank reserves, this would require a further contraction in imports either through a devaluation or further administrative measures, as was the case in FY 2001/02.” Still, it concludes, “the environment is supportive, once the uncertainty surrounding Iraq is over, for the authorities to allow the exchange rate to float.” |
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