Economy in a week: The EU’s Ashton takes her Christmas vacation in Egypt

With many European countries lifting their travel bans on Egypt, the Egyptian government has been trying to reassure foreigners that Egypt is safe. Catherine Ashton’s latest visit with her family gives the government a powerful show of support.

The EU’s Ashton arrived last Thursday for a Christmas holiday, according to Tourism Ministry spokesperson Rasha Azizi, who said Ashton went to Luxor and Aswan in Upper Egypt. This comes after Tourism Minister Hesham Zaazou announced on Monday, two days before Christmas, a campaign encouraging Egyptians abroad to spend the holiday and New Year’s day in their country of origin.

In a press conference last week, Zaazou said that tourism is a main pillar of the economy, supporting over 70 industries. He was speaking to a group of representatives from major Kuwaiti newspapers.

Zaazou said the government will launch an initiative under the name of “2014: The Year of Egyptian Tourism for Gulf Countries,” adding that he will also be targeting Arab tourists during his coming visit to Kuwait in February. He asked the Kuwaiti media delegation to convey to their countries the safe state of Egypt.

Tourism has been falling steadily since March 2013, all the way through to September, when tourism fell that month alone by 70 percent when compared to a year before. October was a break of the downtrend, as the number of tourists and the length of stay increased.

Over the past three years, numbers have been fluctuating with fiscal year 2011-2012 marking the lowest at 10.9 million tourists flying in.

The uptrend has positively affected the balance of payments, resulting in a surplus of the current account. State revenues from the Suez Canal recorded an 8.5 percent increase from November of last year, according to the Suez Canal Authority. The numbers of vessels crossing through the canal were 1,428 in November, compared to 1,357 a year earlier.

The total number of vessels has been falling since 2011, coming down from 18,050 to 16,664 in fiscal year 2013.

Arrears partly paid to oil companies

The government will expend around US$1.5 billion out of the $6.3 billion it owes to international oil companies, with the Central Bank transferring $1 billion to the petroleum ministry to pay late debts, CBE Governor Hisham Ramez told Reuters.

The government has been holding off payments for some time during the country’s political turmoil, but recently avowed to complete its payments in line with its plan to restore confidence in the economy.

Chairperson of the state-run Egyptian General Petroleum Company, Tareq al-Molla, told Reuters that the company will reimburse the remaining $500,000 during the coming week. The remaining amount is scheduled in monthly installments until the end of 2017.

Egypt is keen to encourage foreign oil companies working in the country to increase exploration and production in exchange for a more rapid repayment of the money it owes them.

Increased external borrowing

Unable to generate enough income due to the economy’s sluggish growth, the Egyptian government has augmented its foreign borrowing to benefit from low interest rates abroad, rather than bear the burden of high interest rates locally and crowd out banking liquidity.

Hisham Ramez told Egyptian daily Al-Youm Al-Sabea that the government’s level of external debt is not alarming, and can afford to grow by 6 to 7 percent to remedy unemployment. Official figures from CAPMAS said unemployment in October stood at 13.4 percent, although unofficial figures are expected to be higher.

Egypt’s external debt stood at $46.6 billion by the end of October 2013, which represents 15 percent of the gross domestic product. Ramez said that this ratio is among the lowest in the world.

The global median figure of foreign debt-to-GDP is 40 percent, as stated in a report by the International Monetary Fund.

Of the total amount owed, Egypt is to repay $3.9 billion in 2014, with $2.5 billion going to Qatar and $1.4 billion to the Paris Club as scheduled, Ramez said.

In early December, Egypt returned a $3 billion deposit to Qatar that it had received in May, as a response to flagging relations between the two countries after the July ouster of President Mohamed Morsi.

Generous deposits worth $12 billion dollars from Saudi Arabia, Kuwait and UAE replaced those from Qatar.

Interest accrued from local domestic debt, at $217 billion, has been another burden on the government, increasing by 42 percent in fiscal year 2012-2013 to reach $20.4 billion, according to CBE’s monthly publication. Ramez said that restraint on government spending is critical to reach the targeted deficit of 10 percent of GDP.

Analysts believe that with the increase in government spending on the LE30 billion stimulus package, in addition to funding the new minimum wage for the public sector (set to increase to LE1,200 at start of 2014), the government deficit target may be hard to achieve.

Private minimum wage, unsettled

While the public minimum wage has been set, the private sector and trade union representatives are unable to agree on a minimum wage for private sector workers.

The National Council for Wages, headed by Planning Minister Ashraf al-Araby, has been in ongoing discussions since September, yet has not been able to resolve the matter until now. Many from the private business refuse the minimum wage at this time, believing the decision could burden the sector with significant costs.

On Monday the state-owned Al-Ahram newspaper said that the minimum wage for private sector workers would match that of the public sector. The following day, however, the paper refuted the news after sources from the Egyptian Trade Union Federation stated that no agreement had been reached.

Financial plug-ins

The Ministry of Finance raised a total sum of LE4.5 billion through treasury bills on Sunday.

Ninety-one-day bills garnered LE1.5 billion, and were covered 2.9 times with an average return of 10.53 percent. While 237-day bills earned a total of LE3 billion, were covered 2.13 times with an average return of 11.11 percent.

Sherif Zaazaa 

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