Question

In light of the current government decission to start a gradual reopening of the Egyptian economy despit Coronavirus still exist, suggest the appropriate macroeconomic policies mix (Monetary and fiscal policies) needed to speed up the economic recovery; taking into consideration that Egypt is currently

negotiating a financial agreement with the International Monetary Fund (IMF). This financial package is vital to the Egyptian econmy to fill the financial gap (The backage includes two arrangements, the first known as as“ Rapid Financing Instrument - RFI & the second known as Stand By Arrangement - SBA ”. Show how these suggested macroeconomic policies would achieve the targeted macroeconomic goals ( Hint: use aggregate demand and aggregate supply tools).

Answer 1

COVID-19 has forced most of the countries to take strict measures to stop the spread of Corona virus. The lockdown measures has led to business closures in most of the economy leading to huge economic loss to the economies around the world.

Egytian government has decided to gradually open the businesses in order to ease economic pain for most of the citizens.

Following are the policy mix ( monetary and fiscal ) measures that will ensure smooth opening of the economy.

Fiscal measures by the government should be increased government spending on labor intensive sectors such as construction and infrastructural development which will provide job opportunities to the masses with lease impact on inflation.

Government should also offer cash to the lower strata people who were affected the most due to the lockdown. This will not just provide them much needed support at such crucial time but would also help craete aggregate demand in the economy.

Reduction of taxes should also be offered to the businesses which will ensure their sustainability during and after the lockdown.

Monetary measures should be used generously by the central bank such as infusing more liquidity in the economy by bringing down interest rates which will incentivise businesses and people to borrow.

Central bank can also provide moratoriums for loan repayments to cushion economic pain for the people.

Sudden outflow of dollar has led to reduction in foreign exchange reserves which has led to steep depreciation of the local currency. IMF has provided $2.8 billion using RFI to the country to esnure smooth functioning of the economy.

Country should look at reviving exports and rationalising unnecessary imports at least in the short run to ensure availability of enough foreign exchange reserves.