August 26, 2019

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  • EBRD battles slowing growth

    Thomas Mirrow, outgoing president of the EBRD.


    London/Cairo: The European Bank for Reconstruction and Development’s (EBRD) latest economic outlook for the transition region, which for the first time includes the four Southern and Eastern Mediterranean (SEMED) countries, forecasts an expansion of 3.1 percent in 2012, down from 4.6 percent in 2011.

    The bank’s economists see only a modest pick up to 3.7 percent the following year.

    Besides entering into the turbulent SEMED economies and the unstable political climate in which they exist, the bank is also juggling a Eurozone crisis of unprecedented proportions and immitigable consequences, a new president expected to shake things up and continued criticism of its past legacy as well as its current investments into fossil fuels.

    It is, however, moving forward confidently with its new plans for the SEMED region.

    Its entry into Egypt, Tunisia, Jordan and Morocco will, down the line, see EBRD investing up to €2.5 billion a year in SEMED without “detracting from investments in existing countries of operations,” which in 2011 totaled 9.1 billion euros.

    In the meantime, according to its outlook report, “The euro area crisis will continue to negatively impact those economies in the transition region that are the most intertwined with those of the Eurozone.”

    While data points to a leveling off of capital outflows from the region, negative real credit growth and declining exports will continue to impede expansion, the bank said.

    The Eurozone slowdown will affect the EBRD via both trade and financial channels and also because of a downturn in remittances in some countries.

    As for the SEMED countries, they “continue to face serious macroeconomic challenges and heightened uncertainty, especially in light of the current social and political changes. Fiscal and external current account deficits have significantly widened in the SEMED countries in 2011 and their external financial needs remain significant in 2012-13.”

    The economies in Egypt, Tunisia and Jordan have been hit to different degrees by declining tourism, foreign direct investment and trade, the EBRD report said. “With risk perceptions high, many investors have for now adopted a wait-and-see approach to much of the region.”

    Erik Berglof, chief economist at EBRD, said the Eurozone crisis and oil prices pose the largest risks to these countries. For Egypt and the region, he said, this highly affects the export channel and financial linkages.

    However, he added, SEMED expansion will not have an affect on the bank’s current goals.

    “Inspiration comes from how to use past experience in a new region, which will make us more efficient in both regions,” Berglof said. “We are learning that these countries have their own transition experience and [that will] influence the way forward.”

    Incoming president Suma Chakrabarti said the bank’s main challenge is maintaining its AAA rating. He visited the new region and says he heard praise for EBRD’s response in being more flexible. Still, he said, the bank will need to tailor its approach.

    “EBRD has a client-focused approach, not a top-down one,” he added.

    Meanwhile, outgoing President Thomas Mirrow said, it was easy to grasp from the people in the region a sense of disappointment with the response of IFIs or donors or even countries that have promised aid but not yet delivered.

    There’s an “expectation of big money that cannot be delivered on,” he said, and there’s a demand for speed and no one can afford to wait until a new constitution is in place or for an election to be over and done with.

    Asked about what some perceive as the lack of legitimacy of the current government in Egypt, he said they foray into the country knowing that this will be remedied.

    “Potential developments of Egypt make it slightly more difficult than countries that haven’t experienced revolution [Jordan or Morocco] or were ahead of Egypt in revolutionary developments [Tunisia],” he said.

    Still, the “fate of the region to a high degree depends on the revolution development of Egypt leading to something good and stable. If it fails, that will radiate beyond borders.”

    “Nobody here underestimates the role of Egypt,” said Mirrow. –The Egypt Monocle

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