The economy post covid-19

28 June 2020

Kemet Boutros Ghali Foundation for Peace and Knowledge organized a webinar on the "Economy Post COVID 19" to analyze the economic impact of the pandemic.


Mr. Mahmoud Abbas, Chairman of the Foundation, opened the debate by stating that while there is no way to accurately predict the economic damage stemming from the world lockdown, there are widespread agreements among economists that it will have severe adverse effects on the global economy. The economic damage of the pandemic is characterized by a simultaneous drop in supply and demand, coupled with an increase in the unemployment rate and lower labor productivity in the longer term.


Ambassador Moushira Khattab, Executive President of the Foundation, highlighted the severe repercussions of the lockdown imposed on over 90 countries. Such unprecedented restrictions have triggered deep recession globally, in advanced and developing economies. This deep recession will likely have lasting scars through multiple channels, including erosion of human investments, human capital, and retreat from global trade and supply chains.

On the health side, the virus infected almost nine million people, with nearly half a million lives lost, and the cases still grow at alarming rates. Mrs. Khattab said the economic side is equally scary, with zero revenues for most businesses, a halt in capital expenditure and delinquency in debt repayment, and governments spending millions on stimulus packages while racing against time to find a vaccine.


Quoting world reports, Mrs. Khattab said that the World Bank forecasts the global economy to shrink by 5.2%, becoming the most significant recession since the second world war. Economic activity among advanced economies is also anticipated to shrink by 7% in 2020. Per capita incomes are expected to decline by 3.6%, which will plunge millions into extreme poverty.

The webinar participants then discussed macro and microeconomics and the future of small and medium-sized enterprises. They stressed the importance of policymakers implementing sustainable targeted fiscal and monetary measures and supporting domestically affected households and businesses through investing in human capital and SMEs.


Dr. Hala Al Said, Minister of Planning, explained how the Egyptian government strived to protect its citizens from the virus through precautionary measures and economic stimulus packages. While most sectors suffered heavily following these measures, others, like the medical and agricultural ones, benefited during the lockdown. Despite all odds, the agricultural sector in Egypt enjoyed a 34% increase in exports during the crisis.


The precautionary measures taken by the government in Egypt were unprecedented. According to Dr. Said, the government has introduced exceptional wage and pension increases, revised tax exemption thresholds, and raised the minimum wage. The pandemic aside, the country's fiscal account has improved, the government debt-to-GDP ratio has dropped, and foreign reserves are at comfortable levels covering eight months of merchandise imports. Moreover, the government has been working on implementing the United Nations' Sustainable Development Goals locally to palliate the governorates' development gaps and secure a better lifestyle for all Egyptians.


Dr. Mahmoud Mohi El Din, UNSC Special Envoy on Financing the SDGs, declared that the post-COVID- 19 economy is one of fear. The world had to confront three shocks in one go: health, economic and financial. In earlier crises, experts were typically worried about the economic performance and whether it would negatively impact human lives, "but this time we are all worried about human beings and how they will survive the pandemic," Mohi El Din added.

Moreover, he said that we should calculate the foreseen growth before the pandemic, which experts forecasted at 3%, then add on the expected contraction of the world economy. According to this scenario, we will face almost -10%, which means legions of unemployed citizens, a considerable number of people pushed beyond the poverty line, and an aggravated income and wealth distribution inequality.


Dr. Rola Dashti, Head of the Economic and Social Commission for Western Asia (ESCWA), stated that all aspects of economic growth, notably its social and humanitarian issues, should be an unbiased, comprehensive, and inclusive process capable of striking a sectoral and regional balance. The unprecedented humanitarian crisis of COVID- 19 hit hard on women and irregular workers, especially on the regional level. According to her, the world governments' response was equally tremendous since they have allocated 9.6 trillion dollars which is almost 11% of their GDP, to meet the needs of the confrontation process.


Dr. Dashti lamented that the Arab region's share of this figure was $100 billion, representing only 4% of the Arab countries' GDP, adding that the region needs an extra $100 billion to reverse the impact of COVID- 19 crisis. Medium and low-income countries have allocated  the equivalent of 6.3% of their GDP to counter the virus's repercussions, reflecting how heavily indebted Arab countries are. She called upon Arab governments to widen their financial space and adopt innovative spending mechanisms.


On the role played by the International Financial Institutions (IFIs) during the crisis, Sir Danny Alexander, vice president for policy and strategy at the Asian Infrastructure Investment Bank (AIIB), said that the pandemic took its toll across Asia on several sectors of the economy. The disproportionate impact on low-income sectors, countries with weak health systems, and the adverse effects on inter-state trade have made coordination among the IFIs an essential tool to mitigate the negative consequences of the pandemic.

According to Sir Alexander, the AIIB, funding three energy projects in Egypt, has coordinated its efforts with the National Bank of Egypt to finance the private and public sectors' needs.


As for Hisham Ezz El Arab, CEO of the Commercial International Bank (CIB), the solution to global poverty does not consist in imposing higher taxes on the rich but rather in enabling people to have quality education and democratizing healthcare services.

On the impact of the Covid- 19 pandemic, Ezz El Arab noted that the pandemic has caused viable business models to collapse, leading to financial distress, job losses, an increase in non-performing loans, sale of assets, and insolvency. To contain the recession, governments and central banks have allocated significant funds to businesses through loans, leveraging further balance sheets and increasing risks, as higher debt-to-equity ratios are not sustainable. According to Ezz El Arab, this becomes more complex for Emerging Markets and Developing Economies (EMDEs) as they are at greater risk because of the limitations of their financial systems and resources.


The Covid crisis has impacted 90% of employment for private businesses in developing countries and is projected to cause the first recession in Sub-Saharan Africa in 25 years, undoing hard-fought progress in reducing extreme poverty. An alternative to debt financing is equity capital, which may prevent potential insolvency as it provides funding for business continuity and protects business models from further potential shocks.


Ambassador Maged Abd El Fattah raised the question of the financial repercussions of the pandemic on countries like Lebanon and Jordan. According to him, the credit classification of the two countries made it difficult to get international grants or loans from international financial institutions like the World Bank and the IMF, limiting their capabilities to confront the pandemic or any financial crisis. He wondered whether it was possible to change the classifications adopted by those institutions to make it easier to get assistance.


Dr. Mohamed Othman El-Khosht, President of Cairo University, presented the findings and recommendations of a study conducted by several faculties on the repercussions of Covid- 19. The study, completed end of April 2020, expected an increase in inflation by almost 1% from 8.2%, and for irregular workers to suffer the hardest hit. The same goes for the agricultural sector, which would suffer a contraction of 5.4%.

The study referred to the urgent need to bail out tourism and civil aviation sectors to help mitigate the impact of the lockdown and the measures imposed by governments worldwide to slow the spread of the virus.It recommended that the government keep its stimulus packages in place after opening the economy and enforce strict measures of social distancing and wearing masks.


From an educational perspective, Dr. El-Khosht declared that Cairo University has been working hard to enhance its online system since 2017. The university has accordingly successfully managed to adapt to the situation "online lectures, research, and exams are in place, and students and professors help each other get out of this crisis peacefully," he explained.

Cairo University also contributed to society when its leading educational hospital Qasr Al Ainy devoted 400 beds to COVID- 19 patients. Moreover, five teams of science researchers produced a quarter of the country's science research exploring the virus's genetic code and its genome.


Closing the session on the "Economy post-COVID-19", Mrs. Khattab saluted the contribution of all those involved in the discussion, which was one of the very first organized on the impact of COVID- 19 on the economy.