Policy Brief

Egypt’s Policy Responses to COVID-19:

MENA market comparisons and possible recommendations

April 2020

More than a decade after the 2008 Global Financial Crisis, the COVID-19 pandemic has resulted in an economic
fallout that experts estimate could be greater than its predecessor. To date, the coronavirus has infected over
1.4 million people in 176 countries and claimed over 80,000 lives. Aside from the pandemic’s impact on global
health, the economic repercussions have been severe: governments, businesses, households and financial
markets have been hit hard by high levels of uncertainty and mass disruptions to supplies and operations.
Countries have taken a variety of public health and economic measures in response to rapidly increasing cases
of COVID-19, starting from testing, contact tracing and case isolation to imposing curfews and partial or
complete lockdowns. Global economies began rapidly implementing full-fledged fiscal and monetary
responses in an effort to prevent widespread bankruptcies and avoid bond defaults (especially in emerging
markets). For example, the United States on March 31 deployed an unprecedented USD 2.2 trillion stimulus
package – nearly 10% of its GDP, more than half of the expected federal tax revenues for 2020 and nearly
three times bigger than the American Recovery and Reinvestment Act’s USD 831 billion in 2009.1 Nearly 40%
of the package is directed to help businesses, but it also includes one-time cash payments to households, a
number of tax cuts/write-offs, safety net spending, unemployment benefits and social services allocations.

U.S. stimulus package breakdown

1% Aid to airlines & large businesses
4%
Money for states, hospitals and education
12% 22%
Small business loans & grants

13% Direct payments to Americans

Tax cuts
18%
Enhanced unemployment aid
13%

17% Increased safety net spending

Grants for airlines

Source: U.S. Federal Reserve

The COVID-19 outbreak comes just when Egypt’s GDP growth was projected to hit 6%, threatening to set back
the economic progress the country has achieved in the past four years. To minimize the damage to the
economy, the Egyptian government has launched a comprehensive stimulus package representing about 3%
of FY 2018/19’s GDP. This bailout package is ongoing and includes major fiscal easing in the form of social
safety spending, tax cuts and holidays, and energy subsidies for the industrial sector. The Central Bank of Egypt

1
U.S. Federal Reserve

1
(CBE) has also eased monetary policy by increasing liquidity, lowering key interest rates and providing
subsidized loans and debt relief to sectors that have been hit hardest.
On the regional front, Egypt and its peers have taken similar health measures to contain the spread of the
coronavirus. Partial curfews are in place for most countries (with the exception of Morocco, which has
declared a state of emergency), borders are closed, international and domestic travel suspended/restricted
for several weeks (subject to renewals) and in-person educational, religious and entertainment activities are
adjourned.
The economic policy responses across the region are varied. While Egypt’s package does not beat its peers in
terms of value, it does include the biggest interest rate cut and has a higher number of tax exemptions, social
safety net spending channels and private sector support tools. The government has also accounted for foreign
exchange and foreign trade risks as well as targeted many more sectors for debt-relief initiatives than its
neighbors. (See tables at the end of this note for details.)

Summary of Arab MENA economic responses to COVID-19

Egypt Morocco Qatar KSA UAE
Number of infections* 1,322 1,141 1,832 2,795 2,076
Number of fatalities* 85 83 4 41 11
Number of recoveries* 259 88 131 615 167
Fiscal stimulus package USD 6.3 bn USD 1 bn USD 20.6 bn USD 18.7 bn USD 7.2 bn
Share of GDP 3% 0.8% 13% 3% 2%
Monetary stimulus package N/A - - USD 13.3 bn USD 70 bn
Share of GDP - - - 2% 21%
Interest rate cuts 300 bps 25 bps 125 bps (avg.) 125 bps 125 bps
Stock market intervention USD 1.3 bn - USD 2.8 bn - -
N/A means funds have been allocated, but the amount was not announced.
*As of April 7.
Sources: IMF2, country central banks and media reports

Beyond the MENA region, President Abdel Fattah el-Sisi announced on March 29 that Egypt, South Africa,
Kenya and Congo have reached a preliminary agreement to create a fund to combat COVID-19 and mitigate
its effects on African countries. The fund’s value has yet to be disclosed.

Assessing Egypt’s bailout package

In March, the London-based Centre for Economic Policy Research (CEPR) surveyed 29 economists specialized
in public policy on the top government responses that would have “the greatest impact in mitigating the
economic effects of the coronavirus economic crisis.” The policy tools considered most effective (in order of
preference) were credit support to businesses, bailouts of businesses, unemployment aid, and broad cash
transfers and/or tax cuts, among others.3 While the survey was focused on the United Kingdom, it offers a
general guide for best practices as the crisis continues to unfold.
Egypt’s government has not announced any bailouts but has deployed credit support to businesses, cash
transfers and deferred taxes. Minor employment aid has also been provided, including three-month stipends
until June 2020 to seasonal employees. However, the CEPR survey notes that unemployment aid should be
generous, streamlined and comprehensive in terms of sector, economic activity and employment contracts.
Outlined below are recommendations on a set of key areas to improve the outreach of Egypt’s package,
stimulate the economy and forestall a deep recession.

• Extending financial support to help companies maintain operations and employment levels
Given the private sector’s contribution to nearly 70% of Egypt’s GDP, these types of provisions will support
the supply side of the economy and help maintain industrial, commercial and employment activity. Wage

2
IMF Policy Tracker. March 2020
3
Centre for Economic Policy Research (CEPR). COVID-19: The Economic Policy Response. March 2020

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subsidies could be one of the areas that ensure firms continue to retain and pay their workers even if factories
shut down or run fewer shifts, or if business activity decreases due to lower demand.
Small and medium-sized enterprises (SMEs) are vital parts of the equation as they account for over 90% of the
country’s enterprises. Postponing tax filing deadlines for SMEs and providing them with targeted financial
support could better integrate them into the supply chain and encourage exports. The CBE has yet to expand
its debt-relief initiative to microfinance institutions, which allocate about 40% of their portfolios to
microenterprises.4 Other options would be relaxing loan restrictions, allowing deferred payments or waiving
interest on microloans.

• Facilitating import substitution and export promotion policies

Reducing Egypt’s import dependency will mean supporting the country’s industrial sector and ensuring it faces
minimal production delays. According to a Federation of Egyptian Industries working paper, possible tools to
encourage local industry include:
- Raising free-zone export allowances to the local market from 20% to 50%.5
- Providing targeted support to industries hit hardest by production shutdowns (e.g. ready-made garment
factories exporting to the EU and U.S.).
- Expediting export subsidy payments, value-added tax rebates and companies’ dues in national projects.
- Restructuring the Export Subsidy Fund in light of changes in global conditions that may bar certain services
such as external exhibition facilitation and technical support overseas.
- Fast-tracking industrial license permits and land allocation to induce additional capital investments and
liquidity in the market.
- Streamlining procedures for factories waiting to begin operations.
- Opening up export markets in border-sharing countries such as Libya and Sudan and reaching out to
African markets to offset reduced demand from traditional export markets.
- Maintaining an adequate supply of foreign currency to ensure manufacturers can cover their import needs
for production inputs.
- Strictly enforcing Procurement Law 5/2015, which imposes a 40% local component requirement in
government contracts. This will increase total demand for domestic products and can partially offset the
fall in demand from the local and international markets.
- Reducing toll road fees.
- Exempting factories from their fixed installments of utility fines.

• Strengthening universal healthcare and social safety net coverage

With approximately 28% of Egypt’s population living below the poverty line, the government will need to
strengthen the safety net to protect the most economically vulnerable of its citizens. This could mean
providing more medical assistance and financial assistance for low-income jobs in highly impacted fields,
supporting stipends with other protection measures such as child benefits and social security benefits in the
event of sickness, layoffs or unemployment. Egypt began implementing its Universal Healthcare Law in July
2019, which will gradually provide nationwide healthcare coverage by 2032. The law lays the groundwork for
increased safety net coverage as out-of-pocket expenditures for healthcare decreases and citizens have access
to sufficient medical provision.

• Deploying sector-specific incentive programs

The government has already moved to support the tourism sector, which employs some 3 million workers,
with a EGP 50 billion financing initiative that includes debt-relief programs and subsidized loans (at 8%

4
Financial Regulatory Authority (FRA)
5
On April 9, the General Authority for Free Zones and Investment (GAFI) announced that free zone companies will be
able to sell 50% of their products in the local market for a six-month period. Industrial manufacturers are also
permitted to sell 20% of their raw materials locally.

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interest) for financially distressed tourism companies and hotels. Real estate tax settlements for tourism
companies and hotels have also been postponed to June 2020. A presidential decree issued on April 6 granted
the industry a full tax holiday until September 2020, and the Ministry of Antiquities and Tourism is requesting
emergency funding to help cover the sector’s near-term payrolls to prevent mass layoffs. Restaurants and
shops at state-controlled tourism sites have been granted a rent holiday until the pandemic passes.
There are additional sectors that will require support, including textiles, automotive, aviation, maritime,
building materials and construction, and real estate. For example:
- Aviation: According to the International Air Transport Association (IATA), Egypt’s airlines will see revenues
decline by USD 1.7 billion and passenger volumes drop by 9.5 million through 2020, which could translate
into USD 2.4 billion in GDP losses (0.85% of GDP)6. In terms of employment, this contraction threatens
205,000 direct and indirect jobs in the sector. Several private carriers have appealed to the Ministry of
Civil Aviation for funds to help cover cash shortages caused by the suspension of air traffic. The
government has not disclosed any assistance it may be providing state-owned EgyptAir. IATA recommends
that governments support carriers with loans, tax relief, fast-tracked permits and speedily publishing flight
data. Dubai has announced it will provide a bailout package to its flagship airline Emirates.7
- Construction and real estate: On the supply side, virus containment measures and delays in imported
building materials are affecting construction schedules, while demand for properties is being slowed by
economic uncertainty and the availability of high-yielding banking certificates as an investment option.
The sector’s annual contribution to GDP ranges between 10-15%, and it employs about 15% of the labor
force8. An emergency fund for construction workers facing mandatory leaves may help companies cover
near-term payrolls and avoid layoffs. As construction companies resume operations (per the government’s
direction), preventative measures and testing kits must also be available on construction sites. The
Ministry of Housing, Utilities and Urban Communities has promised to disburse EGP 3.8 billion in arrears
to contractors to expedite construction schedules, specifically in national projects. The government has
granted its contractors six-month extensions to finish construction in government projects.

• Tapping into international finance

According to the International Monetary Fund (IMF), emerging markets collectively need at least USD 2.5
trillion in emergency funding to survive the crisis, and policymakers must react with “very massive” spending
to avoid bankruptcies and emerging market bond defaults (a risk for Egypt given its high reliance on sovereign
debt financing). As of April 2, 85 low- to middle-income countries had approached the fund to inquire about
its funding facilities. After initially ruling out a new loan from the IMF, Egypt’s finance minister told local media
at the end of March that Egypt might resort to the fund given the magnitude of the crisis.
On April 3, the World Bank announced USD 7.9 million in emergency funds to help Egypt battle COVID-19, part
of the organization’s USD 14 billion immediate fund package being deployed for developing countries. Other
financing opportunities available for Egypt (and its private sector) include the African Export-Import Bank, the
International Finance Corporation, the European Investment Bank and the European Bank for Reconstruction
and Development.

• Maintaining national food security

Egypt has invested heavily in agricultural expansion throughout its last five-year national plan, which has led
to considerable growth in crop production, fisheries, processed food factories and storage facilities such as
grain silos and dry ports. This long-term effort should be continued and complemented to ensure a strategic
stock of essential foods largely dependent on domestic production, to minimize reliance on imports. It also
necessitates temporary restrictions on strategic food exports, making it a national priority to fulfill local
demand first. In relation to this, all food-related transportation should be exempted from curfew hours.

6
International Air Transport Association (IATA). April 2020
7
On April 8, the government approved a six-month debt and utility payment holiday for tourism companies, hotels and
private airlines. Payments will resume in October 2020.
8
CAPMAS, March 2019

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 Detailed Arab MENA economic responses to COVID-19

Fiscal policy
Metric Egypt Morocco Qatar KSA UAE
Stimulus EGP 100 bn USD 1 bn QAR 75 bn SAR 70 bn AED 26.5 bn
package (USD 6.3 bn) (USD 20.6 bn) (USD 18.7 bn) (USD 7.2 bn)
▪ Agricultural land - Deferred tax ▪ Reduced fees on
taxes waived until payments for government
2022. companies with services
▪ Real estate taxes annual turnover ▪ Additional utility
deferred to June < USD 2 mn. subsidies
2020.
▪ Stamp duties and
dividend taxes
reduced.
Taxes* and
▪ Capital gains tax - -
subsidies
postponed until
2022.
▪ Personal tax filings
deferred to mid-
April.
▪ Subsidized social
insurance tax rate
for low-income
youth.
▪ Lower energy ▪ Social contribution ▪ Hospitality, ▪ Suspended tax ▪ Reduced
prices for industrial payments deferred tourism, retail, payments, fees and government fees
sectors. to June 30 commercial other dues to the and penalties.
▪ Tax payments ▪ Coverage of 95% of complexes, and government. ▪ Fast-tracking
deferred to June financially logistics zones ▪ Monthly payroll existing
2020, with distressed exempt from utility compensation for infrastructure
payments in companies’ loans. bills until financially projects.
Private
installments. September 2020. distressed ▪ Credit guarantees
sector
▪ Logistics zones and companies until and liquidity
support
SMEs exempt from June 2020. support for SMEs.
rent until ▪ Rebates on lease
September 2020. payments for
▪ Rent payments for tourism and
SME retail tenants hospitality
deferred to August companies.
2020.
▪ Social security ▪ Nationwide ▪ Increased health
extended to 10 mn upgrades of spending
beneficiaries (2.4 medical facilities. (undisclosed
mn families). ▪ Allocations to amount).
▪ 14% increase in health, education ▪ Reduced spending
Social pensions starting and social in non-priority
2021. solidarity sectors. - areas. -
spending
▪ Emergency fund ▪ Undisclosed
for public-health household support.
professionals.
▪ Life insurance for
health workers.
▪ Monthly stipends ▪ Allowances for
for registered laid-off employees
Employee seasonal workers registered with
until June 2020. pension fund. - - -
aid
▪ Allowances for
informal workers.
* Tax relief initiatives are subject to extensions.
Sources: IMF, country central banks, media reports

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 Monetary policy
Metric Egypt Morocco Qatar KSA UAE
Stimulus SAR 50 bn AED 256 bn
N/A* - -
package (USD 13.3 bn) (USD 70 bn)
Deposits: 100 bps
Interest 300 bps 25 bps Loans: 175 bps 125 bps 125 bps
rate cut
Repo: 100 bps
▪ Temporary limits ▪ Liquidity to banks ▪ ATM fees & POS ▪ Zero-interest
on ATM in the pipeline. fees waived until collateralized loans
withdrawals. June 2020. to banks.
▪ ATM & POS fees ▪ Liquidity supply on ▪ ATM & POS fees
waived until reserve. waived until
Liquidity September 2020. - September 2020.
▪ Halved banks’
reserve
requirements for
demand deposits
▪ Loan payments ▪ Loan payments for ▪ Loan payments for ▪ SME loan ▪ 15-25% reduction
deferred to medium-sized businesses and payments in SME loan
September 2020. businesses & self- retail clients deferred. provisions.
▪ Interest waived on employed deferred deferred to ▪ Reduced bank fees
Lending
individual debt (< to June 30. September 2020. for SMEs.
EGP 1 mn) at risk ▪ New credit lines for
of default. operational
expenses.
▪ Agriculture
Sector- ▪ Tourism
specific ▪ Mortgages - - SMEs Mortgages
financing ▪ Medium-sized
factories
Variation margin of
Stock
EGP 20 bn listed financial QAR 10 bn
market - -
(USD 1.3 bn) instruments revised (USD 2.8 bn)
support
downward.
▪ Cut interest rates Broadened local
Foreign on USD deposits. currency fluctuation
currency ▪ Offered high-yield band to +/- 5% (from - - -
liquidity EGP saving +/- 2.5%).
certificates.
*Funds have been allocated, but the amount was not announced.
Sources: IMF, country central banks, media reports

Trade
Metric Egypt Morocco Qatar KSA UAE
Payouts from Export
Export
Subsidy Fund in Q2 - - - -
incentives
2020.
- Export ban on Imposed an export Food and medical Halted exports of
medical supplies, license for medical imports exempt from medicines,
Restrictions disinfectants, protective masks. custom duties until pharmaceutical and -
ethanol and strategic September 2020. medical devices.
food until June 2020.
Sources: IMF, country central banks, media reports

*****
© 2020 American Chamber of Commerce in Egypt (AmCham Egypt). This document can be shared as long as the source is credited.
This research note is produced by AmCham Egypt’s Business Studies & Analysis Center (BSAC); the data is current as of April 9,
2020, and has been verified to the best of the publisher’s ability. In addition to cited sources, analysis is based on insights from
AmCham Egypt's 23 sector-based committees as well as public statements by the Central Bank of Egypt, Ministry of Finance and
other Cabinet-level and government agencies.