Economic Recovery Sluggish in Egypt and Tunisia

A lack of policy direction in North Africa is jeopardizing the already-sluggish economic recovery, according to a report by Capital Economics.

Going by the report, unemployment has reached record highs in both Egypt and Tunisia, fiscal and external positions are poor, and the global environment remains weak. So far, there has been little in the way of economic strategies or real reforms from the region’s governments or parliaments. This is desperately needed to avoid dire consequences in the near term.

Capital Economics, the macroeconomics research consultancy, has pointed out that immediate economic challenges facing Egypt and Tunisia are different. While the latter appears to have averted balance of payments problems through foreign help, Egypt is yet to receive substantial external funds.

The report has stated that Islamists in parliament are as much to blame for Egypt’s procrastination on securing foreign help, particularly from the IMF, as the interim government and military council. Regardless of who is to blame though, the reality is that Egypt is on the cusp of a full-blown balance of payments crisis, which could lead to a disorderly devaluation of the pound and exacerbate Egypt’s economic troubles in the near term.

Capital Economics has said that Tunisia’s recovery continues to struggle to gather pace. The industrial sector appears to have lost steam, having bounced back from political disruption at the beginning of 2011. Also Tunisia is highly dependent on exports to the eurozone, which is expected to enter a deep recession this year.

The report also points out that Egypt’s economy contracted by nearly 1 percent over the last year and, although Q4 data are not yet available, Tunisia’s GDP is likely to have shrunk by a similar amount. This has led to a record rise in the unemployment rate in both countries, Egypt’s to 13.4 percent and Tunisia to a staggering 18 percent. So looking ahead, the near-term economic prospects remain poor, especially in Egypt.