Cairo - December 31, 2023: From Fitch Solutions’ most optimistic view of Egypt’s growth to the lowered expectations of the IIF, a diverse range of forecasts paints a complex picture of the country’s potential growth in the coming year as the country faces numerous external geopolitical and economic shocks.
Egypt
With the economy pressured by various external factors, Egypt lowered its growth forecast for the current fiscal year in early December, with Minister of Planning and Economic Development Hala El-Said announcing an expected 3.5 percent growth rate for FY2023/2024 compared to the previous projection of 4.2 percent.
The MPED minister attributed the revision to several external shocks that have occurred in recent years, including the ongoing wars in Gaza and Ukraine, and the pandemic’s lingering impact. El-Said stated that “this forecast may increase a little or decrease a little depending on the impact of the war on our borders”.
In an interview on the sidelines of COP28, El-Said explained that Egypt could see “a little bit of a pause in investment,” adding that she believes that “all sectors are moving, whether it’s the manufacturing, tourism, or construction sector. All of the sectors are moving as usual and as we hoped”.
Fitch Solutions
BMI, a research unit of Fitch Solutions, delivered the most optimistic forecast for the current fiscal year at 4.2 percent, a slight decline from its previous expectations of 4.4 percent, citing the potential impact of the war on Gaza as a contributing factor.
According to its report, the FDIs brought in by the government’s privatization program would “more than offset” the impact of falling demand and limited ability to cut imports.
“The war has already resulted in a significant drop in Egypt’s gas imports from Israel, which is used for liquefied natural gas exports, thus weighing on Egypt's exports. [It has also added] another layer of uncertainty for conducting business in Egypt, encouraging investors to adopt a ‘wait-and-see’ approach,” the report wrote.
EBRD
The European Bank for Reconstruction and Development (EBRD) came in second, predicting a strong growth of 4.1 percent for FY2023/2024 with 4.5 percent for 2024 as a whole.
The EBRD also noted that a reduced natural gas output was a major obstacle to GDP growth, adding that it reached a three-year low during the first half of the year, as well as a slowdown in construction and manufacturing activities.
Regarding 2024, the bank shared that growth was expected to remain stable at 4.5 percent, “held back mainly by structural constraints in non-resource sectors, high inflation, and limited fiscal space. Downside risks include continued volatility in global energy and food prices and potential delays in the implementation of the reforms aimed at boosting private sector growth”.
S&P
Despite lowering Egypt’s credit ratings more than once this year, S&P still has some optimism for Egypt’s economy as it predicts a 4 percent growth in the 2023 fiscal year, however, it noted that it was a significant slow down from the previous year’s recorded 6.6 percent.
S&P highlighted the foreign currency shortage’s impact on import restrictions, noting that it will further impact GDP growth in FY2024. It also pointed out that “after the CBE's long-term strategy for the exchange rate becomes clearer, market confidence should improve. We project growth to pick up over our forecast horizon to fiscal 2026”.
“The construction and energy sectors could be key growth drivers, along with IT and communications, wholesale and retail trade, agriculture, and health care. The Hayah Karima program, which aims to improve living standards in rural communities, should help develop the quality of infrastructure,” it explained.
OECD
In November, the Organization for Economic Cooperation and Development (OECD) forecasted Egypt’s economic growth for FY2023/2024 at 3.9 percent.
Despite noting high inflation and balance of payments difficulties, the OECD explained that fiscal support helped maintain private consumption and shared expectations that consumption would gradually gain momentum as inflation moderates.
“The [Egyptian] authorities should continue to fight inflation by keeping monetary policy tight and restraining public investment projects that are not urgently needed. A reinforced commitment to reducing public debt in the medium term would help restore investor confidence, thereby reducing financing costs and currency depreciation pressures,” the organization suggested.
World Bank
Citing rising borrowing costs and the impact of high inflation on economic activity, the World Bank lowered its estimate for Egypt’s economic growth to 3.7 percent for FY2023/2024 in October – marking the second time this year that it revised its expectations after cutting it to 4 percent from 4.8 percent in the summer.
International Monetary Fund
In its October report, the International Monetary Fund (IMF) revealed that it expected the Egyptian economy to grow 3.6 percent, pointing towards the hard currency shortage. The IMF’s new estimate matched its lowered projections for the overall region, expecting regional growth to slow to 2.0 percent from 5.6 percent in 2022.
Its report pointed out that a full recovery from the pandemic is increasingly out of reach and that global growth prospects for the medium term are at their lowest.
Egypt and the IMF remain in locked discussions about the country’s $3 billion loan program, signed in late 2022, which has faced several delayed reviews. Both the Egyptian government and high-level IMF executives have implied that discussions have moved to increasing the loan, but have not disclosed further information.
Institute of International Finance
Forecasting a growth rate of 3.3 percent for FY2023/2024, the Institute of International Finance (IIF) expects that a decline in private-sector consumption and exports could occur due to growing inflation, foreign currency shortages, and commodity supply bottlenecks.
The institute explained that geopolitical tensions in the region accelerated the decline in exports, noting the impact of the war on Gaza on Egypt’s exports of liquefied natural gas (LNG).
However, the IIF emphasized the significance of external funding in sustaining Egypt's economy while pointing out that the primary method of addressing the gap will be through foreign direct investment (FDI) and official financial flows.
Looking Ahead
The landscape of Egypt's economic outlook for FY2023/2024 and beyond is shaped by a myriad of interconnected factors - external shocks, encompassing geopolitical tensions and the enduring impact of the pandemic – emphasizing the challenge of predicting Egypt's growth which is further punctuated by the varied estimations by major institutions.
Despite these challenges and Egypt’s own cautious view, growing optimism and confidence in the country’s ability to navigate and adapt to uncertainties is clear.
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