IMF says Egypt’s reform programme on track as GDP growth exceeds forecast
Fund projects 6% growth rate in medium term
The IMF has lauded Egypt’s implementation of economic reforms that helped it secure a $12 billion aid package, predicting the country's GDP growth could rise to 6 per cent per annum "in the medium term" if the country stays the course.
Egypt’s economy grew 4.2 per cent in the 2016/2017 fiscal year that ended in June, beating the IMF forecast of 3.5 per cent, and is set to expand at a rate of 4.8 per cent in the 2017-2018 fiscal year, the fund said in its newly-published Egypt Country Report. The country's economy grew 3.5 per cent in the 2015-2016 fiscal year.
“Growth is expected to gain momentum in 2017/18, driven by a recovery in consumption and private investment and a continued positive contribution from net exports,” the fund said.
Medium-term growth is forecast to rise to 6 per cent in the medium term, the fund said, giving no further details.
Egypt’s economy is rebounding following a period of political and economic turmoil since the 2011 uprising. The country has endured severe hard currency shortages as foreign investment and tourism revenues dwindled, resulting in lower growth and a widening fiscal deficit.
Egypt floated its currency in November 2016 and raised fuel prices to boost revenues, in line with expectations set out by the IMF for the three-year $12bn loan facility.
The loan has helped Egypt attract foreign investment and replenish its central bank reserves, which reached $37.02bn in December last year compared with $24.26bn a year previous.
“To sustain economic reform momentum, in the medium term, policy priorities should aim to raise potential output and promote inclusive growth to create jobs for Egypt’s young and growing population,” the fund said.
“This will require the private sector to become the primary engine of growth and the state to provide a stable macroeconomic environment, a friendly business climate and efficient delivery of public goods.”
Egypt suffered from a spike in inflation following the floating of the pound and the rise in fuel prices, with urban inflation hitting a multi-decade high of 35 per cent in July. But the fund expects the measure, which eased to 21.9 per cent in December, to continue falling to 12 per cent by June and reaching single digits by 2019.
The IMF predicts Egypt’s primary fiscal deficit to swing to a surplus of 0.2 per cent of GDP in the 2017-2018 fiscal year. The deficit for 2016-2017 narrowed to 1.8 per cent of GDP from 3.5 per cent of GDP in the previous fiscal year.
The fund urged the government to continue to reduce its overall deficit by further increasing fuel prices and controlling public sector wages.
The IMF urged Egypt to stay the course in its reform programme in order for progress to be sustained.
“Pressures to expand spending beyond budgetary allocations, any premature easing of monetary policy before inflation expectations are fully anchored, or opposition to reforms by vested interests, could undermine stabilisation efforts,” the fund said.
“Loss of momentum on structural reforms would adversely affect growth prospects. External risks relate to a worsening of the security situation that could slow the recovery of tourism, a sustained rise of global oil prices, lower growth in Egypt’s main trading partners, or any unexpected tightening of global financial conditions.”
Updated: January 24, 2018 10:37 AM