Introduction
The objective of this report is to study the impact of the Covid-19 pandemic crisis on Egypt’s external sector and the external financing gap. Egypt’s continued reliance on portfolio inflows to finance the external funding gap meant the Covid-19 shock wasbound to put further pressure on the balance of payments (BoP)which has been realized. A combination of a decline in tourism revenue due to the crisis and portfolio outflows from emerging markets has then led to a significant strain on Egypt’s external accounts.
In reaction to the crisis and the induced pressure on the BoP, the government sought assistance from the International Monetary Fund (IMF). In May 2020, The IMF Executive Board approved funding of USD 2.8 billion in emergency support to address the Covid-19 pandemic. Furthermore, in June 2020, the IMF approved a 12-month stand-by arrangement, with total access of USD 5.2 billion to address the BoP financing needs.
In this report, we discuss likely trajectories for Egypt’s external accounts as the crisis unfolds. We also present deeper-level analysis of the root causes of Egypt’s external sector vulnerability in recent years. Viewing the current crisis as yet another opportunity to effect macroeconomic reforms, we propose policy measures to address vulnerabilities in Egypt’s external sector.
