*3.3. Effects of GERD on Egypt's Macroeconomy*

Table 3 summarizes results of this quantitative exercise (Appendix B). First, consider the top panel of Table 3. The results show that a 1 standard deviation (SD) increase in agricultural land translates into a 0.33 SD increase in the value of agricultural output overall, and a 0.73 SD increase in food production in particular. This provides a channel for GERD to manifest in Egypt's agricultural sector, with implications for the entire economy.

For transmission into the broader economy, we look at the coefficients in the bottom panel (Panel b; Table 3). The coefficients in this panel represent the sensitivity of the featured variables to changes in agricultural sector production. Following a 1 SD increase in agricultural sector output, food import declines by 0.49 SD. This also causes an increase of 0.94 SD in food export. As expected, female employment, male employment, and total employment in the agricultural sector respond positively to output in this sector. CPI inflation, on the other hand, declines in response to an increase in agricultural sector output. Moreover, real GDP per capita and consumption per capita increase by 0.46 and 0.73 SD, respectively, in response to a 1 SD increase in agricultural sector output.

Having established the transmission channel for losses in agricultural land in the economy, we now look at the impact of GERD on specific macroeconomic variables under the alternative filling scenarios. Using the elasticity coefficients (Table 3) and the expected losses in agricultural land (Table 1 ), we estimate the projected losses/gains in the variables for the alternative reservoir filling scenarios. We also trace out the expected deviations in these variables from trends in the baseline scenario.


**Table 3.** Elasticity coefficients for selected variables grouped by regressors.

#### 3.3.1. GDP, the Cost of Living, and Welfare

We start by examining the overall impact of GERD on agricultural sector output, real GDP per capita and consumption per capita. We also examine the impact of GERD on the overall cost of living, as measured by CPI inflation. Figure 5 presents projected trends in these variables for both GERD and non-GERD (baseline) scenarios. A few comments are in order. First, in the baseline scenario, agricultural output, GDP per capita, and consumption per capita are projected to continue trending upwards for the next few years, with projected average annual growths of 2.27 ± 0.71%, 2.38 ± 1.65% and 4.74 ± 2.12%, respectively, over the next 3 years (Table 2). Overall, the recent swings in CPI inflation are expected to continue in the next few years. For a 3-year horizon, however, this variable is expected to continue a downward trend.

The implementation of GERD is projected to cause disruptions in these economic trends to various degrees depending on the filling scenario. As shown in the top panel of Table 4, the projected annual losses in agricultural sector output due to GERD are estimated to average 17.51 ± 0.99%, 9.34 ± 0.92%, and 7.50 ± 0.90% under the 3, 7, and 10-year filling scenarios, respectively, relative to the baseline (Figure 5a). This also translates into annual losses in real GDP per capita of 8.02 ± 0.45%, 4.28 ± 0.42%, and 3.44 ± 0.41%, respectively (Figure 5b). The projected loss in GDP per capita under the 3-year scenario is in line with the findings by Heggy et al. [9]. In a study that relies on growth rate projections by the World Bank [25], they also find that implementing GERD in a 3-year span would contribute to losses in GDP per capita by approximately 8%. Moreover, as shown in the bottom panel of Table 4, the projected losses in real GDP per capita amount to annual losses in real GDP of \$26.30 ± 2.81 billion, \$15.70 ± 3.04 billion, and \$13.40 ± 3.11 billion, respectively. For agricultural sector output, this amounts to annual losses equivalent to \$6.99 ± 0.58 billion, \$3.96 ± 0.61 billion, and \$3.32 ± 0.65 billion, under the 3, 7, and 10-year filling scenarios, respectively.

The disruptive effects of GERD also lead to losses in welfare, as defined by the decline in consumption per capita, of up to 12.83 ± 0.73% relative to the baseline, while augmenting the cost of living in Egypt to various degrees depending on the reservoir filling scenario (Figure 5c,d). Under the 3-year scenario for example, CPI inflation is projected to rise 9.38 ± 4.38 percentage points above the baseline (Figure 5d). For the 7-year and 10-year scenarios, the projections are 4.70 ± 1.66 and 5.07 ± 2.75 percentage points higher than the baseline, respectively (Figure 5d).

**Table 4.** Losses/gains in agricultural sector output, real GDP per capita, consumption per capita, and CPI inflation relative to the baseline (no GERD) scenario.


added) <sup>−</sup>6.99 <sup>±</sup> 0.58 <sup>−</sup>3.96 <sup>±</sup> 0.61 <sup>−</sup>3.32 <sup>±</sup> 0.65 Real GDP −26.30 ± 2.81 −15.70 ± 3.04 −13.40 ± 3.11

**Figure 5.** Projected trends in (**a**) agricultural sector output (billion \$), (**b**) GDP per capita, (**c**) consumption per capita, and (**d**) CPI inflation under the alternative filling scenarios.

3.3.2. Food Production, Food Import, and Food Export

We now look at the impact of GERD on food production, food imports, and food exports. Figure 6 presents projected trends in these variables in both GERD and the baseline (no GERD) scenarios. A numerical summary of these trends is presented in Table 5.

**Table 5.** Average annual losses/gains (%) in food production, food imports, and food exports relative to the benchmark (no GERD) scenario.


Notes: The variable "food production" refers to the production index of food crops. "food import" and "food export" are, respectively, the share of import and export of food items in total merchandise trade.

In the baseline scenario, the graph shows a generally upward trend in the index of food production. With GERD, however, food production declines significantly, with the shorter filling scenarios constituting larger shocks to this variable (Figure 6a). Under the 3-year filling scenario, GERD is projected to cause an average annual loss in food production of 38.47 ± 2.18% relative to the baseline scenario (Table 5). For the 7-year and 10-year filling periods, the corresponding average annual losses are 20.53 ± 2.02% and 16.49 ± 1.98%, respectively. To partially compensate for the shortage in domestic food production, food import, as a share of total merchandise import, is expected to rise by 8.56 ± 0.49%, 4.57 ± 0.45%, and 3.67 ± 0.44% annually relative to the baseline, depending on the filling scenario (Figure 6b). Compared to food import, food export is projected to decline more dramatically, with the 3-year filling scenario causing an annual decline of 16.50 ± 0.94% relative to the baseline scenario (Figure 6c; Table 5).

**Figure 6.** Projected trends in (**a**) food production index, (**b**) food imports, and (**c**) food exports under the alternative filling scenarios.
