The introduction of a flexible exchange rate in November 2016 was part of the loan agreement with the IMF. The international organisation had advocated for the move as a means of stabilising the economy and alleviating a shortage of US dollars – an acute concern for a country reliant on imports. While the depreciation initially brought higher inflation, the move facilitated foreign investment as the weaker Egyptian pound bolstered competitiveness.
In addition to the flotation of the currency, the IMF agreement included an overall economic reform agenda that, among other things, targeted reducing the public debt. In April 2019 the Ministry of Finance and the Central Bank of Egypt announced the goal of reducing the government’s estimated general debt from 86% of GDP at the end of June of that year to 72% by June 2023. This initial figure was already lower than the 93% of GDP seen in June 2018, an improvement the IMF attributed to fiscal consolidation and high nominal GDP growth.
Central to lowering the public debt was eliminating expensive fuel subsidies that weighed on government finances, a process that began in 2017. By mid-June 2019 the authorities had removed subsidies on most energy products in the country, leading petrol, diesel, kerosene and fuel oil to reach international benchmark prices through indexation mechanisms.
Alongside economic reforms, diversification efforts helped to lay the groundwork for innovative responses to the pandemic. Around 140 investment deals were made with Egyptian start-ups in 2019, according to the “2019 MENA Venture Investment Summary” report by MAGNiTT, equivalent to 25% of all deals in the MENA region that year and placing Egypt as the top country by number of deals. Those deals amounted to $98.5m, 3% more than in 2018. The greater emphasis on ICT and the start-up community allowed a strong ecosystem to flourish, one that was able to respond to the economic and health effects of Covid-19.
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