COVID-19 is dampening growth, undermining external income sources, disrupting fiscal consolidation and exacerbating long-standing challenges. Social hardship is aggravated by the ensuing job losses. Maintaining the recently achieved macro-economic gains is crucial for the economy¡¯s resilience against such a severe shock. This multi-faceted health and economic crisis underscores the urgency of advancing the human capital agenda and strengthening social protection, as well as adopting structural reforms to enhance private sector activity and job-creation.
Economic activity slowed down, notably since the implementation of social distancing measures and the temporary suspension of air traffic. Around 2.7 million jobs were lost during Q4-FY2020, pushing unemployment to 9.6% (from 7.7% in the previous quarter), with employment losses mainly reported in the retail and whole-sale trade, manufacturing, tourism, transport and construction sectors, especially among informal workers.
An emergency response package worth LE100 billion (1.7% of GDP) augmented health expenditures and social protection programs, including a one-off cash grant to irregular workers and extending the existing cash transfer programs. Forbearance measures were introduced in the form of delayed tax filing and loan repayments, in addition to subsidized credit to targeted sectors.
Government debt is projected to increase from 90.2% of GDP in end-FY2019 to 93.8% of GDP in end-FY2020. However, the one-off cancellation of the debt owed by the government to the Social Insurance Funds (SIF) worth LE371 billion (6.4% of GDP) is estimated to bring down government debt to 87.4% of GDP in end-FY2020.
Under the scenario that the pandemic will persist through early-2021, COVID-19 impact will be spread across two fiscal years, with the adverse effect expected to be more severe in FY2021. Thus,