How is Egypt handling the Covid-19 pandemic?

Although the country’s constitution dates from 2014, Egypt has been a presidential republic since the overthrow of the Muhammed Ali dynasty in 1952. Prior to 2019 the president served an initial four-year term, which could then be followed by a second term. However, after a referendum in April of that year, the public voted in favour of extending the presidential term to six years. With the next elections scheduled to take place in 2022, two additional six-year terms would allow President Abdel Fattah El Sisi to serve as head of state until 2034.

Political System

The Parliament of Egypt, known as the House of Representatives, is a unicameral legislature elected through proportional representation in a combination of both direct and indirect elections every five years. Of the total 596 seats, 448, or 75%, are directly elected, while 120 seats (20%) are reserved for women and minorities and allocated through a party list system, and the remaining 28 seats (5%) are directly appointed by the president. The 2015 election saw the majority (59%) of seats being occupied by independents, with the three largest parties being the Free Egyptians Party, with 65 seats; the Nation’s Future Party, with 53 seats; and the New Wafd Party, with 36 seats.

The judiciary is independent from the executive branch, as guaranteed by the 2014 constitution, and is made up of the Supreme Constitutional Court, the Administrative Prosecution and the State Council. The state appoints judges, who are pre-approved by the Supreme Judicial Council, which is responsible for overseeing the judicial system as a whole.

Economy

Prior to the outbreak of Covid-19 in early 2020, Egypt had one of the best-performing economies in the MENA region and, despite the disruptive effects of the pandemic, this trend looks set to continue. According to the IMF’s “World Economic Outlook” (WEO) report and database released in April 2020, Egypt is forecast to see real GDP growth of 2% in 2020, making it the only economy in the MENA region expected to experience growth that year. This projection remained unchanged in the June 2020 WEO, despite the fact that the IMF adjusted Egypt’s 2021 growth forecast from 2.8% to 2%. On average, however, the IMF predicted in April 2020 that the region will see a GDP contraction of 3.3%.

Egypt’s resilient economy can in part be attributed to a series of government-implemented structural reforms, backed by a $12bn IMF loan released in five tranches, the last of which was received in July 2019. “Prudent monetary and fiscal policies and a flexible exchange rate have underpinned macroeconomic stabilisation and strengthened Egypt’s resilience to external shocks, while social protection measures have helped ease the burden of adjustment on the population,” the IMF said in a press release that month.

Although many of these reforms are seen as necessary, they have also brought further – but potentially short-term – economic hardship to many citizens. After the flotation of the Egyptian pound, the country experienced extremely high levels of inflation, which reached 33% in July 2017. This led to supply-side shocks and price volatility for basic commodities such as food, which put pressure on consumers’ spending power. Inflation has since fallen and the currency has stabilised, but the long-term effect of double-digit inflation and the removal of fuel subsidies in line with drastically reduced government spending has disproportionately affected lower-income households.

As such, a central goal of Egypt’s government – in addition to supporting economic growth – is to increase the standard of living for all residents. In June 2020 Prime Minister Mostafa Madbouly made a statement stressing the importance of social and economic reform to the country’s prosperity, citing health care infrastructure as a particular priority.

In recent years several far-reaching measures have been implemented to improve the population’s well-being. These include a social housing programme that had constructed 600,000 new units between 2015 and May 2020, the Mastura programme to provide microfinancing to female entrepreneurs and a comprehensive plan to reform the country’s education sector.

Social Issues

As part of a wider strategy to raise the standard of living, the government has made significant efforts to improve the quality and accessibility of health care. To this end, a new Universal Health Insurance (UHI) Law came into effect in 2018. While the law did not give a mandate for the introduction of full universal health care, it resulted in the creation of three new authorities, one of which – the General Authority for UHI – is charged with ensuring that compulsory health insurance is available for the entire population. As a result, state-funded health care is gradually being phased out, while coverage is being expanded to ensure that lower-income households have access to treatment. Indeed, the government has agreed to cover the cost of insurance for families that fall below the poverty line, which represent around 25% of the population.

For residents that are above this threshold, the household’s main income earner is responsible for making a monthly payment to cover their family’s contribution. This includes both children and unemployed family members. The new UHI system covers the necessary costs for all procedures, from routine examinations to medical tests. It aims to emphasise the ability to choose treatments and facilities, as well as reduce out-of-pocket spending. Although the law was passed in July 2018, its full implementation is expected to be completed by 2032.

Education also forms a central part of the government’s plans to boost social well-being and provide a solid base for human capital development. Egypt has the largest education system in the MENA region, with upwards of 21m students and more than 60,000 schools. In 2018 the government announced the launch of a comprehensive programme to overhaul education policy, known as the Supporting Egypt Education Reform Project. President El Sisi subsequently declared 2019 “the year of education”, which marked the start of a reform process that is set to last more than a decade.

Supported by the World Bank, the programme aims to improve teaching and learning conditions across Egypt and is made up of five key parts: early childhood education, effective teachers, comprehensive assessment reform, enhancing education delivery, and project management, monitoring and evaluation. While the reform process is likely to take past 2030 to be completed – and more years will pass before its policies become fully evident – the outbreak of Covid-19 in early 2020 has accelerated some aspects of the programme. For example, the use of virtual learning platforms has increased significantly as a result of movement restrictions. However, given that government funds are being redirected to providing relief amid the pandemic, the programme may experience some disruption.

Covid-19

As a result of the country’s ongoing economic reforms, the IMF predicted in October 2019 that Egypt’s GDP would grow by 5.9% in FY 2019/20. However, the outbreak of Covid-19 and the resultant lockdown measures and closure of international borders have presented a number of challenges for key sectors such as tourism and retail. Although Egypt’s demographics and solid financial sector make it the only country in the MENA region that the IMF does not forecast will enter a recession in 2020, there is no question that the pandemic will lead to a number of substantial changes. For some sectors, such as e-commerce and ICT, adaptations during the pandemic are likely to bring lasting benefits to Egypt’s economy. However, it may take some time for other industries, such as tourism and transport, to return to pre-Covid-19 levels.

Outlook

The Covid-19 pandemic presents a critical challenge to Egypt’s socio-economic development and has caused considerable disruption across many areas. However, the government’s clear and decisive long-term planning should ensure that investors and the business community remain confident in the country’s progression. The success of the IMF-backed economic reforms that began in 2016 have resulted in a number of structural changes to the economy, which stand the country in good stead to mitigate the worst effects of the pandemic.

Nevertheless, Egypt – like the rest of the region – is set to face a number of headwinds in 2020. While the reforms have improved prospects for many businesses, more can be done to boost employment and living standards. Looking ahead, Egypt’s underlying fundamentals – such as a young and rapidly expanding population – will help ensure that the country continues on a path to long-term growth.