News Analysis: Egypt's economy hopeful despite hardships, foreign loans: economists

Egypt economy is still hopeful despite the country's policy to resort to foreign loans, particularly from the World Bank and the African Development Bank, as the loans reflect confidence of international and regional financial institutions in Egypt's future ability to pay back, said Egyptian economic experts.

Suffering over 11 percent of budget deficit in the outgoing 2014/2015 fiscal year, which Egypt aims to reduce by over two percent this year, the Egyptian government has recently approved getting a loan of three billion U.S. dollars from the World Bank and 1.5 billion from the African Development Bank, one-third of each loan is to be delivered by the end of this year.

"Foreign loaning is not desirable in general, but the foreign loans are softer when they come from financial institutions rather than foreign countries, and being approved such regional and international banks is a good indicator that Egypt's economy has positively passed their assessments," Amr Saleh, professor of political economy at Cairo-based Ain Shams University and former World Bank project officer, told Xinhua.

The professor admitted that Egypt has been suffering economic hardships over the past few years of political turmoil and that the country is in dire need for funds to improve its infrastructure, enhance its exports, establish new factories, carry out development projects and restart the wheel of production.

"Although foreign loans reflect finance issues, they still indicate confidence in Egypt's future economy, as such institutions never provide loans without assessments and mission reviews," Saleh explained, noting that similar loan requests were declined by the World Bank and the International Monetary Fund (IMF) a few years ago due to instability of the country's institutions.

The three billion dollars Egypt will get from the World Bank are supposed to be deposited at the Central Bank of Egypt (CBE) that will hand them in Egyptian pounds to the Finance Ministry to spend them on the government's intended development and infrastructure projects.

"This will help increase the foreign currency reserves at the CBE, which currently stand at 16.4 billion dollars compared to 36 billion before the turmoil in 2011, and will support the value of the Egyptian pound that has recently been declining against the U.S. dollar," said Fakhry al-Fiky, economic analyst and former assistant to IMF executive director.

Earlier in March, Egypt held high-level worldwide economic conference in its Red Sea resort of Sharm el-Sheikh to attract foreign investments, which ended up with memos of understanding worth billions dollars, some 12 billion of which turned into final agreements of major power and oil projects with companies like German's Siemens, UK's British Petroleum and Italy's Eni and others.

Meanwhile, during the conference, supporting oil-rich Gulf States including Saudi Arabia, the United Arab Emirates and Kuwait, offered Egypt over 12 billion dollars to assist its ailing economy, half of which has been already transferred to the CBE.

"I believe that by the end of the first quarter of the 2015/2016 FY, most memos of understanding will be changed into final deals, as a new parliament will be soon in effect that will reassure a lot of investors if it approves relevant laws related to investment facilitation and tax relief," Fiky told Xinhua.

Struggling for major projects to revive economy, Egypt expanded and deepened its vital Suez Canal to receive more and larger passing ships with the aim of gradually increasing annual revenues from average five billion dollars to 13.23 billion in 2023.

"The decreasing cost and time for passing ships due to the Suez Canal expansion will flourish the business in the waterway and make up for the decline of world trade rate by the increase of the number of ships," the expert explained, expecting some large ships to prefer the Suez Canal after being deepened to the long Cape of Good Hope coastal line around Africa.

Some experts still warn that resorting to loans is not a favorable idea while the country is suffering structural issues, maladministration and corruption in many economic fields.

"For instance, we have previously received one billion dollars from the World Bank to develop the railway network in Egypt, but it was used to renew the offices of some officials, repair the platforms, build a cafeterias, etc," said Ibrahim Nawwar, economic expert and former spokesman for the Egyptian industry and foreign trade ministry.

Nawwar told Xinhua that borrowing from foreign banks is a burden as the value of a loan automatically increases in time when the government collects dollars to pay it off, especially that some donor Gulf States are now financially exhausted with the declining oil prices and the ongoing Saudi-led war in Yemen.

With regards to tourism as a main source of Egypt's national income, the sector in 2010 alone brought the country about 13 billion dollars in revenues. Later on, it has been deteriorating over the past chaotic four years that saw the ouster of two Egyptian heads of state, yet it was slowly on the rise.

Late October's Russian plane crash in restive North Sinai province added more recession to the already-ailing tourism industry as it eventually led some states, including Britain and Russia, to suspend their flights to Sharm el-Sheikh and to evacuate their nationals over security concerns. Endit