With a new country profile and some interesting graphs (attached here), SACE takes stock of the current situation of theEgypt.
The Egyptian government has approved a USD 3,2 billion contingency plan to revitalize the economy over the next 10 months. The plan includes resources for investment projects labor-intensive, stimulus measures to the tourism sector and the payment of arrears owed by the government to businesses (to be carried out almost entirely by December 2013).
Despite such expansive measures, the authorities are predicting a reduction of the public deficit to 9% of GDP compared to 14% recorded this year. In fact, the government aims to use the USD 12 billion in aid announced by the Arab countries (Saudi Arabia, the United Arab Emirates and Kuwait) after the removal of President Morsi.
The announced plan confirms the government's willingness to do not introduce austerity measures, such as the increase in taxation and the reduction of subsidies, which could further exacerbate tensions in the country. The failure to introduce long-term policies and incisive and unpopular economic reforms is also linked to the absence of a popular mandate and broad legitimacy of the authorities (the current executive is expected to remain in power for around 8 months).
In the absence of a reduction in current expenditure and an increase in tax revenues, investment projects will depend on the ability of the executive to attract aid at the bilateral level and to involve multilateral institutions. Since the beginning of July, with the removal of President Morsi by the Armed Forces, Arab countries stepped up their support to announced about USD 12 billion in aid (of which 5 billion already disbursed by Saudi Arabia and the UAE), contributing to slow the decline in reserves (at the end of July USD 18,9 billion, the highest level since November 2011).
The country continues to depend on the support of the donators, while the economy continues to struggle to recover due also to the impact of the unrest on the tourism sector (international arrivals are still 16% lower than pre-crisis levels) and the cautious approach of foreign investors (FDI: -70 % in 2012 compared to 2006). The cost of CDS (cost of hedging country risk through credit default swaps) also shows limited market confidence in the country, remaining at record levels since July 2013.
Although the political and economic instability has significantly worsened all its assessments of credit risk, both for the country and for local banks and businesses, SACE remains in a situation of prudent opening for the granting of insurance coverage, and we recommend that all many of our exporters (Italy is the second country in the world, after the USA, in trade with Egypt), trying to become secure all operations which do not in themselves have coverage with financial instruments (such as documentary credits confirmed by Italian banks and forfaiting). Better not to repeat the terrible experience of Libya two years ago.
Attachments: Egypt.pdf http://firstonline-data.teleborsa.it/news/files/844.jpg
