Economic Fallacies in Statements of Egyptian Officials

Egyptian government officials have taken advantage of the regime’s one-voice media to disseminate economic data that are far from reality.

Unfortunately, none of the economists is allowed to respond to these false statements via newspapers, satellite TV channels, or even on social media, in light of the regime’s tight control over everything circulated critical of the official data disseminated by the government, with accusations and punishments targeting those who may try to refute these data, ranging from defamation and prevention of publication to imprisonment, especially in the absence of a real parliament that can perform its oversight role, or hold those officials accountable for their unrealistic statements and comments.

These false allegations include the following:

– The alleged rise of the Egyptian pound against the US dollar despite the negative repercussions of the coronavirus pandemic on economy,

– The claim that Egypt has achieved economic growth ranking second among world countries after China last year,

– Redacting certain phrases from the reports issued by international institutions to demonstrate improvement of economic conditions in Egypt, without honestly disseminating the complete content of those reports that are extremely critical of the weaknesses of Egyptian economy, especially the increase in external debt and the large budget deficit.

– Selecting some countries to compare Egypt with, regarding the budget deficit rate, to come up with an outcome that there is a decrease in Egypt’s budget deficit compared to countries of the world.

 – The allegation that when late President Mohamed Morsi was overthrown by the military, there was only 800 million dollars left in the Central Bank of Egypt (CBE)’s foreign exchange reserves.

– The claim that Egypt during Morsi’s tenure obtained $31 billion from Arab countries,

– In addition to other allegations that none of the economists is allowed to respond to or refute through various Egyptian media.

First: Egypt allegedly ranked second in GDP growth among world countries

This paper will start with refuting what the Egyptian government has been reiterating for months that Egypt has ranked second, after China, among the world countries in the GDP growth rate during 2019, where officials promoted this content through dissemination of a chart prepared by the government using pro-regime satellite TV channels and newspapers, from time to time, including for example: the comments of the CBE Governor on TV interviews, and the statements issued by the Ministry of Finance, such as a claim that China has achieved a growth rate of 6.1% and Egypt 5.6%, thus surpassing the rest of the world countries in GDP growth rate.

Reviewing the International Monetary Fund (IMF)’s World Economic Outlook report issued last April, we find that Egypt ranked twenty-seventh in economic growth rate among world countries, along with Guinea, Uzbekistan and Guinea-Bissau that shared the same position. As for the twenty-six countries that preceded them with respect to the growth rate, they were: South Sudan by 11.3%, Rwanda by 10.1%, Libya by 9.9%, Ethiopia by 9%, Bangladesh by 7.9%, Armenia by 7.6%, Djibouti and Tajikistan by 7.5%. Nepal ranked tenth internationally, with a growth rate of 7.1%, and each of Cambodia and Vietnam by 7%, Côte d’Ivoire by 6.9%, Myanmar by 6.5%, Benin by 6.4%, each of Tanzania and Turkmenistan with a growth of 6.3%, and both Ghana and China with a growth rate of 6.1%. In the twentieth position, came each of Gambia and Tuvalu, with a growth rate of 6%, while each of the Philippines and Mauritania achieved a growth rate of 5.9%, Niger 5.8%, and each of the Maldives and Burkina Faso 5.7%.

It is strange that this report is available on the Internet in several languages, including Arabic. Despite this, Egyptian officials as well as the Egyptian public and private media continue to reiterate the allegation that Egypt has occupied the second place in the world’s GDP growth rate last year.

Second: Positive growth in 38 countries

Egyptian officials repeat a similar allegation through issuance of statements in Egyptian media to the effect that the International Monetary Fund expects that the Egyptian economy would grow positively this year with a rate of 2%, and that Egypt is the only developing country that the IMF has expected positive economic growth for, claiming that the IMF expected negative growth for the rest of developing and emerging countries. Reviewing the World Economic Outlook report issued by the International Monetary Fund (IMF) last April, we found that it expected positive growth for 38 developing and emerging countries, including Egypt; and that Egypt ranked fifteenth with an expected growth rate of 2%, the same rate that the IMF expected to occur in Bangladesh, Burkina Faso and Tanzania. As for the countries that surpassed Egypt in the expected growth rate, Guyana came first, followed by South Sudan, Benin, Rwanda, Uganda, Ethiopia, Senegal, Guinea, Vietnam, Bhutan, Nepal, Gambia and Mozambique.

The IMF also expected a positive growth of less than 2% in India, Myanmar, Turkistan, Uzbekistan, Ghana, Mali, Brunei, China, Malawi, Kenya, Togo, Djibouti, Tajikistan, Cameroon, Niger, Lao, the Philippines, Indonesia, Madagascar and Eritrea.

Third: Unrealistic data for budget expenditures

Another striking example of lack of credibility of the government data is the issuance of a report on the Ministry of Finance’s website, titled “The Citizen’s Budget for FY2020/2021”, reviewing the contents of the current fiscal year budget, which started early July and continues until the end of next June, boasting that the budget expenditures have reached EGP1 trillion and 713 billion, divided into six chapters, namely: the civil servants’ wages with a value of EGP335 billion, the purchase of goods and services needed to meet the daily government workforce at a value of EGP100 billion, and the interests of internal and external debts of the government, worth EGP566 billion, support, grants and social benefits worth EGP326 billion, and other expenditures including allocations for the army, worth EGP105 billion, and government investments worth EGP281 billion.

This report was issued on 14 September, while the parliament had approved on 20 July deduction of 1% of the civil servants’ wages for a period of 12 months, and a deduction of 0.5% of the value of pensions for a period of 12 months, which means that the value of wage and subsidy allocations will be lower than those mentioned two months later in that report.

Other data from the Ministry of Finance also indicated a drop in revenues during the second quarter of the current year, representing the last quarter of FY2019/2020, which reflected on reduction of expenditures, while these revenues are expected to continue to decline during the current fiscal year due to the repercussions of the coronavirus pandemic, and accordingly reducing the declared expenditure estimates.

Fourth: Reducing government investments in the first half of 2020

There is another measure taken by the government, which indicates that the expenditures figures mentioned in the so-called ‘Citizen’s Budget’ report are expected to not be fulfilled, namely the issuance of a decision by the Prime Minister on 7 September, a week before the issuance of the ‘citizen’s budget’ report, reducing government spending in all expenditure sections within the first half of the current fiscal year, except for Chapter 3 on government debt interest.

The Prime Minister’s decision included reducing spending by 20% for entities whose continued activity during the height of the COVID-19 pandemic was not affected, and by at least 50% for those that had partially or completely suspended their activities, in accordance with the Prime Minister’s decisions to suspend several activities during the peak of the pandemic.

The Prime Minister’s decision specified the rationalization procedures for each expenditure section separately: Chapter 1 on wages stipulated that no appointments, promotions or settlements should be made during the first half of the fiscal year, with prohibition of spending on training grants and bonuses. Chapter 2 on the purchase of goods and services stipulated the freezing of at least 50% of the financial appropriations for the parties involved in the sectors of education, youth, culture and religious affairs, with freezing the equivalent of at least 20% for the rest of the second chapter items.

The budget’s chapter 3, related to subsidies, stipulated that 50% of spending on social services must be frozen. Chapter 4, concerning other expenditures, stipulated prohibition of spending on contributions to domestic and international organizations.

Chapter 6, on government investments, stipulated the freezing of funds for the item of transportation and transport fees by 100%, with freezing funds spent on the item of housing research and studies by at least 50%, freezing funds spent on non-residential buildings by at least 50%, and the freezing of funds for the equipment item by at least 50%.

Thus, the decision to rationalize spending by these percentages during the first half of the current fiscal year means that the figures announced about the in the budget expenditures have not been achieved, which the Ministry of Finance bragged about and promised the citizen that it will improve his standard of living during the fiscal year, while the reality of reducing government investments indicates prolonging the period of implementing public services projects.

The strange thing is that the so-called ‘citizen’s budget’ which carried the slogan of “Your right to know the budget of your country” did not mention anything about the decision to reduce employees’ wages and the value of pensions, or projections of lower revenues, and accordingly the expenses, or the decision to reduce the value of the items of five chapters of the six expenditure sections, with percentages ranging from 20% to 50% during the first half of the fiscal year.

Fifth: Egyptian pound allegedly rising despite exit of foreign investors!

The statements of CBE Governor Tarek Amer about non-interference in determining the exchange rate of the Egyptian pound against the dollar, that he repeated many times, most recently during his interview with an Egyptian satellite TV channel owned by a businessman on 9 September 2020, represent one of the allegations that cannot be convincing to the public or to experts.

It is noteworthy that March witnessed a massive exit of foreign investors from the Egyptian Stock Exchange, disposing of a large part of their purchases of Egyptian government debt instruments, as foreigners’ purchases of Egyptian treasury bills decreased from $19.7 billion in February to $9.5 billion, a decline of $10.2 billion, by 52%.

Also, the net foreign assets – currencies – In the banking system decreased during the same month by about $16.4 billion, of which $5.2 billion represented a drop in CBE net foreign exchange, and a decrease of $11.2 billion in other commercial and investment banks operating in Egypt.

This also caused a decline in the value of foreign currency reserves at the Central Bank of Egypt during the month by about $5.4 billion; and despite all this, the Egyptian pound’s exchange rate against the US dollar increased during the month by about 0.13 pounds, a growth rate of 0.9%, which clearly indicates the CBE administrative intervention to push the exchange rate upward, while all objective factors were pushing it down against foreign currencies, in the event that the price determination was left to supply/demand requirements, due to the severe bleeding in foreign currencies that exceeded twenty billion dollars during the month.

Sixth: $612 million drop in reserves in Morsi’s year against $20.5 billion during junta (one and half years)

Although the statements of the governor of the central bank in any country must be characterized by accuracy and integrity, the Egyptian CBE governor during his last televised interview participated in the tendency to degrade and underestimate the tenure of late President Mohamed Morsi (only one year in office), saying that he found out that they “did not understand anything”. He also depicted the suggestions of Dr. Hussein Hassaan, an expert in Islamic economics who converted many companies and banks in the Gulf and other areas from the traditional to the Islamic economic style, as “quackery”.

He claimed that during the term of Morsi, $31 billion were obtained from Arab countries, and despite that – according to him – the tenure ended by squandering that money until the CBE foreign exchange reserves declined to only $800 million! In fact, when the military overthrew late President Mohamed Morsi in 2013, the foreign exchange reserves were $14.922 billion, compared to $15.534 billion before he took power, a decrease of only $612 million during his one year in office, while the foreign exchange reserves had decreased from $36 billion to $15.5 billion, a drop of $20.5 billion during the period of the military junta, in less than a year and a half.

Also, the data of the CBE itself indicated that the increase in debt during Morsi’s year in office amounted to about $8.8 billion only, bringing the debt to $43.2 billion, compared to $34.38 billion before he took office:

These loans were distributed between $4.7 billion in medium and long-term loans and $4.1 billion in short-term loans. The most prominent countries that lent Egypt during that period were Qatar with about $4.5 billion, Libya with $2 billion, Turkey with $1 billion, and China with $203 million, in addition to euro bonds worth 2.5 billion, and $ 895 million in loans from multilateral institutions, most notably the World Bank, the European Investment Bank, the Arab Fund for Social and Economic Development, the African Development Bank, the Islamic Development Bank, and the OPEC Fund.

The foreign aid received by Egypt during late President Morsi’s year in office reached only $901 million, divided between: $501 million from Qatar, $325 million from the United States, $61 million from Germany, $8 million from China and less than $2 million from Japan, and about one hundred thousand dollars from England, Switzerland and Canada.

Seventh: Debts increasing despite the reform program

When a TV presenter asked Deputy CBE Governor Gamal Negm on September 18, 2020, about the conditions of the Egyptian economy had the economic reform program not been implemented in November 2016, Negm’s response was: The debt would have risen!

It is a strange answer in light of the huge rise in both internal and external debt since then until now, as the external debt increased from $60.2 billion in late September 2016 to $111.3 billion by the end of last March, in addition to the $2.8 billion obtained from the International Monetary Fund on the eleventh of last May and $5 billion worth of foreign bonds issued in the same month.

In addition, it was agreed to borrow $5.2 billion from the International Monetary Fund on June 26, of which the first batch has been delivered, in addition to obtaining loans from other parties, including the World Bank, the European Investment Bank, the European Bank for Reconstruction and Development and the Islamic Trade Finance Corporation.

The domestic public debt increased from EGP2,758 billion at the end of September 2016 to EGP4,355 billion at the end of last year, according to the latest data disseminated by the Central Bank of Egypt, as it refrained from publishing any data about the domestic debt during the first nine months of the current year, the months that witnessed continuation of domestic borrowing, whether from banks or in the form of issuance of treasury bills and bonds to cover the chronic and large budget deficit, and compensate for the lack of government budget revenues, especially taxes, due to the repercussions of the COVID-19 pandemic.

The CBE governor boasted of the initiatives offered by the CBE including provision of loans with interest rates lower than the prevailing market rates to the sectors of industry, tourism and real estate, in addition to small and micro industries. However, the Central Agency for Public Mobilization and Statistics (CAPMAS) responded to this by issuing a report on unemployment rates late in June, showing that it increased to 9.6%, at a time when many experts believe that the real unemployment rate is much higher than that rate.

However, in the workforce research report for the second quarter of the current year issued by CASMAS stated that the workforce, including both the employed and the unemployed people, reached 26 million and 689 thousand people by the end of June, against 29 million and eight thousand people by the end of March of the current year, that is, a decrease of 2 million and 319 thousand people during the second quarter of this year, by 8%, which practically indicates that the work markets did not clearly benefit from the initiatives presented by the CBE.

Eighth: The IMF expects a decrease in foreign exchange reserves

While the CBE governor stated in a recent televised speech that the foreign exchange gap no longer existed, an IMF report issued on 1 September 2020 about the Egyptian economy indicated that the financing gap during the current fiscal year has reached $4.5 billion, as difference between the financing sources with an amount of $37.5 billion and the financing needs of $42 billion, represented in a current account deficit of $16.2 billion, a short-term external debt outstanding of $19.2 billion, amortization of $6.5 billion worth of medium and long-term foreign debt and interest repayments of $4.3 billion.

This IMF report revealed that it expected the CBE foreign exchange reserves to remain less than $40 billion during the next four fiscal years, after it had reached $45.5 billion in January 2020, to reach $31.9 Billion in next June, despite reaching $38.4 billion last August.

The IMF also expected the foreign exchange reserves to reach $32.6 billion by the end of FY2021/2022, decrease to $32.3 billion in June 2023, rise to $38.3 billion in June 2024, then to $45.7 billion in June 2025, which means that the foreign exchange reserves needs five years to return to its balance in the months prior to the coronavirus pandemic, in a clear indication of the continued foreign exchange crisis in the coming years.

The IMF expected the trade balance deficit to continue to grow, representing the difference between the value of merchandise exports and the value of merchandise imports, during the next five fiscal years, rising from $28.5 billion in June 2021 to $36.9 billion in June 2023, then to $44.5 billion in June 2024 and to $51.9 billion in June 2025, despite the continued statements on doubling the value of exports over the next few years, as the IMF expected the value of merchandise exports to revolve around $30 billion during the next five fiscal years, while it expected the merchandise imports to continue to rise up to $86 billion dollars in FY2024/2025.

This will lead to continuation of the deficit in the current transactions balance, which measures the difference between the total resources of commodity and service exports, foreign aid and remittances of Egyptian expatriates on the one hand, and the payments of commodity and service imports, repayments of interest on investments and foreign deposits in Egypt, and remittances of Egyptian expatriates. The IMF expected this balance to hit a deficit around $10 billion during the next five fiscal years, up to $12 billion in FY2024/2025.

The IMF also expected that the cost of external debt will continue to increase in the coming years, as a result of the large value of the foreign debt, which is expected to not be less than $110 billion during the next five fiscal years. Therefore, the International Monetary Fund expected a rise in the cost of servicing the external debt with respect to interest and installments, from $14.7 billion in the current fiscal year (2020/2021) to $20.1 billion in FY2021/2022, then to $24.5 billion in FY2022/2023.

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