Egypt’s macroeconomic situation has improved significantly following a three-year $12 billion (Dh44bn) reform programme but there is still work to be done as the country needs to absorb 3.5 million new workers in the next five years, an International Monetary Fund report found.
“The near-term outlook remains favourable, but sustained reform implementation will be essential to sustain strong growth and manage external risks,” the report said. “A more inclusive private sector and export-led growth model is needed to absorb the significant new entrants to the labour force expected over the next five years.”
Following the fifth review of Egypt’s reform programme by the IMF in July, the Washington-based lender approved its final instalment of $2bn in funds to help boost North Africa’s biggest economy. “Egypt has successfully completed the three-year arrangement under the Extended Fund Facility and achieved its main objectives,” David Lipton, IMF’s acting managing director, said at the time.
The Egyptian economy has suffered from a severe downturn following the 2011 revolution. The government devalued its currency and cut subsidies at the end of 2016 to get the IMF loan agreement, followed by further spending cuts.
As a result of Egypt’s reform programme, supported by the extended fund facility arrangement, “growth has accelerated; current account and fiscal deficits have narrowed; international reserves have risen; and public debt, inflation and unemployment have declined”, the IMF report said.
Real gross domestic product increased by 5.4 per cent in the first half of Egypt’s 2018-2019 fiscal year supported by strong growth in natural gas, tourism and construction.
The 2018-2019 budget was on track to achieve a primary surplus of 2 per cent of GDP, which would complete the programmed fiscal adjustment of 5.5 per cent of GDP in three years. The fiscal consolidation has helped anchor a decline in general government debt from a peak of 103 per cent of GDP at the end of the 2016-2017 fiscal year to an estimated 85 per cent of GDP.
It is important to maintain a primary surplus of 2 per cent of GDP for the 2019-2020 budget “to keep public debt on a downward trajectory,” the report said. The authorities plan to complete a medium-term revenue strategy by the end of this year that will help in generating income through modernising tax administration.
Unemployment declined to 8.1 per cent in the first quarter of 2019, the lowest in over a decade, and fell further to 7.5 per cent in the second quarter. The unemployment rate reached a peak of 12.9 per cent in the 2014-2015 fiscal year.
“A loss of momentum on reform implementation due to complacency or opposition from vested interests would weaken the growth outlook,” the IMF report said. While strong growth in recent years has resulted in a steady decline in unemployment, “should real GDP growth slow towards the 2006-2015 average of 4 per cent, unemployment would likely return to double digits”.
The Egyptian pound has appreciated by about 8 per cent against the dollar since the beginning of this year, reflecting in part increased portfolio inflows through the interbank market due to the cancellation of the repatriation mechanism in December. The mechanism had guaranteed that overseas investors could repatriate their foreign currency earnings.
Egypt's annual urban consumer price inflation decreased to 4.8 per cent in September from 7.5 per cent in August, the statistics office said on Thursday, slowing to its lowest level in almost seven years. Earlier this month the government decreased fuel prices, following a series of hikes under the reform programme in recent years.
