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Economic Bailout Measures: Egypt, Gulf, Globe

Economic Bailout Measures: Egypt, Gulf, Globe

ArabFinance: Coronavirus (COVID-19) is likely to cost the global economy $1 trillion in 2020, the UN’s trade and development agency, according to a March 9th study by UNCTAD.

At press time, the global pandemic has reached 339,341 cases, with a death toll of 14,703.

Prior to the outbreak, S&P Global, a US ratings agency, projected a global recession this year, with annual global economic growth rising 1%-1.5%. However, the IHS Markit is forecasting global real GDP growth in 2020 to slow down to 0.7% as a result of the COVID-19 outbreak.

In response to mitigate the knock-on effects of this crisis, governments and central banks worldwide have moved to roll out fiscal and monetary stimulus measures to counteract the economic uncertainty caused by the coronavirus.

 

Egypt: Macroeconomic measures

For Egypt, the blow is expected to be hard. By the end of March, the virus outbreak is predicted to cost the country’s economy nearly EGP 100 billion ($6.39 billion) of this year alone, with tourism, aviation, and real estate sectors impacted the most, Abdel El Moneem El Sayed, chairman of Cairo Center for Economic and Strategic Studies, told Zawya.

In response, the country has embarked mid-March on a comprehensive coronavirus strategy to cushion the economic blow from the epidemic.

Egyptian President Abdel Fatah El Sisi has allocated EGP 100 bn ($6.39 billion) on March 14th, the same date when the total number of confirmed cases in Egypt stood at 110, according to official figures released by the Health Ministry. The value represents 1.9% of the country’s GDP which totaled EGP 5.3 trillion ($338.655 billion) in FY 2018/2019, the Minister of Planning noted in a statement.

Following this announcement, Finance Minister Mohamed Maait said the funding will be made available from emergency liquidity in the current fiscal year’s budget, according to a March 15th ministerial statement.

The funding included an EGP 187.6 million ($11.99 million) tranche allocated to the Ministry of Health and Population, of which EGP 153.5 million ($9.81 million) disbursed to medical supplies and preventative measures as well as EGP 34.1 million ($2.18 million) in bonuses to healthcare workers handling testing and infections, according to the statement.

Planning and Economic Development Minister Hala El Saeed unveiled in a March 19th statement the government’s plan for a new stimulus package similar to the EGP 30 billion ($1.92 billion) approved during the 2008/2009 financial crisis.

 

Bailing-out the EGX

On March 22nd, the president announced the CBE will allocate an unprecedented EGP 20 billion ($1.278 billion) to support the stock exchange. According to the announcement, these funds are for buying shares listed on the EGX. This amounts to more than 5% of the total EGX100 market cap, which currently stands at a little over EGP 380 billion.

Other EGX measures announced by the Cabinet include cutting stamp tax on EGX transactions to reach 0.125%, instead of 0.15%, for foreign investors, while locals will pay just 0.05% stamp tax, down from 0.15%. Additionally, all spot transactions on the EGX will be exempted from stamp tax.

Moreover, the cabinet postponed the issuance of capital gains tax on EGX transactions to January 1st, 2022. Investors will now pay a withholding tax of 5% on dividend payouts from listed companies, down from 10%.

 

Easing the industrial burden

In a bid to support the industrial sector, the government has cut the price of natural gas for the entire industrial sector to USD 4.50 per British thermal unit (mmBtu). The price of electricity per kilowatt-hour was also reduced by 10 piasters for medium, high and ultra-high voltages, and will be frozen for the next 3 to 5 years. 

In addition, all businesses operating in the industrial and tourism sectors will receive a three-month real estate tax break and will be permitted to repay existing real estate tax liabilities in monthly installments over the next six months.

The Export Subsidy Fund also vowed to support exporters with an entire EGP 1 billion ($63.9 million) in arrears during March and April, in addition to 10% in cash payments during June.

 

Regional Response

On a regional scale, Many of GCC countries have taken similar stimulus moves to offset the impact of the coronavirus pandemic, with the UAE and Saudi Arabia topping the list of countries that reacted fast to combat the virus.

Dubai began by launching an AED 1.5 billion ($410 million) stimulus package aimed at supporting the retail, trade, tourism and energy sectors, according to a March 12th tweet by Sheikh Hamdan bin Mohammed bin Rashid al-Maktoum. The measures are aimed at cutting costs for businesses and residents over the next three months.

The UAE’s central bank also rolled out on March 14th a comprehensive AED 100 billion ($27.23 billion) economic stimulus to support banks and businesses in the country, as well as all virus-affected private sector companies and retail customers in the country.

The support scheme consists of AED 50 billion ($13.61 billion) worth of collateralized loans at zero cost to all banks operating in the UAE. An additional AED 50 billion ($13.61 billion) worth of funds will be freed up from banks’ capital buffers “to boost lending capacity and support the UAE economy,” the bank said in a statement.

Shortly after this move, the Abu Dhabi Executive Council announced a dynamic economic stimulus package On March 16th to fast-track the implementation of key Ghadan 21 economic initiatives.

The measures include an allocation of AED 5 billion ($1.36 billion) for water and electricity subsidies for citizens as well as the commercial and industrial sectors. This aims to lower the cost of living and support businesses, as well as subsidizing electricity fees for startups until the end of the year.

An additional AED 3 billion ($820 million) has been allocated to help small and medium-sized enterprises (SMEs) to cope with the economic impacts of coronavirus. As for the financial markets, AED 1 billion ($270 million) were allocated to establish a market maker fund, to enhance liquidity and sustain a balance between supply and demand for stocks. Other initiatives include exemption startups of performance guarantees for projects up to AED 50 million ($13.61 million).

Likewise, the Saudi Arabian Monetary Authority had rolled out on March 14th a SAR 50 billion ($13.31 million) package to help SMEs to navigate the current market climate, according to an official statement.

Oman was also among the countries which introduced a raft of policy measures and financial incentives against the economic downturn caused by the COVID-19. The Central Bank of Oman (CBO) has unveiled on March 18th an estimated OMR 8 billion ($20.86 billion) financial aid to businesses embattled by the virus breakout, according to Oman Observer news website.

Banks, finance, and finance leasing companies were also directed to accept all requests for deferment of loan installments, interest, or profit for affected borrowers, with immediate effect for the next six months.

Bahrain followed suit on March 17th when the government launched a BHD 4.3 billion ($11.44 billion) economic stimulus package, equivalent to 29.6% of Bahrain’s annual economic growth. The package aims to support the country’s economy against the effects of the coronavirus.

Measures included doubling the liquidity support fund to BHD 200 million ($531.89 million), while raising the Bahraini central bank’s loan facilities to BHD 3.7 billion ($9.84 million) to allow debt installments to be deferred and extra credit to be extended.

 

Global Matters

Following the virus outbreak in early March, international funds and banks moved to take measures addressing the Economic Impact of such a pandemic.

The International Monetary Fund (IMF) and World Bank (WB) have announced up to $62 billion in emergency funding to help combat COVID-19. On March 3rd, the WB announced an initial package of up to $12 billion in loans for member countries to help cope with the effects of the coronavirus, of which $8 billion is new loans and $4 billion is redirected from current lines of credit.

The IMF said on March 4th it made $50 billion in loans available to aid to developing countries, including $10 billion of zero-interest loans to the poorest IMF member countries. On March 16th, the IMF announced it "stands ready to mobilize its $1 trillion lending capacity to help our membership."

On a national level, the US on March 6th, President Donald Trump signed an $8.3 billion spending bill, currently called "Phase One" of stimulus efforts, to fund efforts to fight the pandemic, CNBC reported.

Following this move, the White House and congressional leaders rushed on March 17th to propose a massive stimulus rescue plan that is worth up to $1 trillion. The package aims to help the U.S. virus-hit economy against any possible damage the coronavirus pandemic

A few days later, White House Economic Advisor Larry Kudlow announced on March 21st the stimulus package under negotiation in the Senate will likely be twice the proposed bill to reach more than $2 trillion. The package is equivalent to about 10% of U.S. economic output, Kudlow told reporters.

Moving to the UK, the country’s finance minister Rishi Sunak announced a budget with nearly £30 billion ($34.95 billion) in fiscal stimulus on March 11st. This aimed at investing in public services, supporting vulnerable people, and offering tax reliefs and loans to businesses.

On March 17th, the UK government unveiled another stimulus package including an initial £330 billion ($384.45 billion) of loan guarantees – equivalent to 15% of UK economic growth.

It also encompasses £20 billion ($23.30 billion) of business rates support and grant funding to businesses battered worst by the virus, such as retail and hotel businesses.

France followed suit as it announced plans for mobilizing €45 billion ($48.44 billion) in crisis measures to help its companies, Finance Minister Bruno Le Maire said on March 17th.

Le Maire said the package will include reduced social security contributions for an amount of €35 billion ($37.67 billion), Politico news website reported. Unemployment benefits for people forced to work part-time will cost the government €8.5 billion ($9.15 billion), while a solidarity fund for shopkeepers and the self-employed and will receive around €2 billion ($2.15 billion).

Germany is also preparing an emergency budget worth more than €150 billion ($161.45 billion) to businesses suffering from the economic impact of the COVID-19 outbreak, Reuters quoted the country’s Finance Minister Olaf Scholz on March 21st.

Government sources told Reuters that hundreds of billions in an additional package for the private sector would be raised. The package will include a supplementary government budget of €156 billion ($173.78 billion), €100 billion ($107.63 billion) for a fund that can take direct equity stakes in companies, and €100 billion ($107.63 billion) in credit to public-sector development bank KfW for loans to businesses impacted by the virus.

The fund will also provide €400 billion ($430.54 billion) in loan guarantees to secure corporate debt at risk of defaulting, taking the volume of the overall package to more than €750 billion ($807.26 billion).

China has also been implementing several policy measures to fight against the virus outbreak, yet the total figure of its stimulus package is unknown. However, China's central bank announced on February 3rd supporting the financial system by expanding reverse repo operations (extending cash to banks to stabilize money markets for short term loans) by ¥1.2 trillion ($170 billion), and it added another ¥500 billion ($70.46 billion) on February 4th.

The central bank also lowered bank reserve requirements on March 13, freeing up about ¥550 billion ($77.51 billion) to be lent out, Reuters reported.

Despite the fast global and national response, the world’s economies are yet to reach the eye of the COVID-19 hurricane and it is still far too early to project the total cost of this pandemic.

 

By Julian Nabil

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