IMF expects Egypt's GDP to dip to 2% in 20/21, rebound to 6.5% in 21/22

CAIRO – 11 August 2020: Egypt’s growth rates during fiscal year 2020/2021 has been lowered to 2 percent due to COVID-19 pandemic with expectations to rebound to 6.5 percent in 2021/2022, the International Monetary Fund (IMF) said in a report.

IMF clarified that this percentage came as the global recovery is now expected to be more gradual and domestic activity is projected to remain weak for longer.

“The COVID-19 outbreak is driving a downward revision to Egypt's growth by the IMF from 5.5 percent to 2 percent in FY2019/20, and from 5.2 to 2 percent in FY2020/21, particularly to reflect the sharp slowdown in tourism and supporting industries as well as manufacturing, real estate and trade, despite construction, oil refinery, and agriculture remaining fairly robust,” it noted.

As per 2021/2022, IMF expected real gross domestic product (GDP) to hit 6.5 percent and to record 5.3% in both 2022/2023 and 2023/2024.

 

 

The reported explained that assuming that macroeconomic stability will be maintained, a strong rebound of 6.5 percent is expected in FY2021/22 as domestic activity starts to normalize, although a full recovery in tourism to pre-crisis levels could take longer given public health concerns may continue to weigh on international travel. Inflationary pressures are expected to remain contained with annual headline inflation increasing from just under 6 percent on average in FY2019/20 to about 8.2 percent in FY2020/21, affected mainly by unfavorable base effects and macroeconomic developments of the COVID-19 outbreak.

IMF also noted that progress on structural reforms is essential to unlock Egypt’s higher growth potential. 

“The structural reforms to enhance [state-owned enterprises] SOE transparency, improve competition, and facilitate trade are critical for incentivizing private sector participation and will help strengthen governance and reduce corruption vulnerabilities. These efforts, when complemented by reforms to strengthen the social safety nets, will contribute to promote human capital and business investments and raise overall productivity,” it clarified.

It noted that the reforms supported under this [Stand-by Arrangement] SBA will help set the stage to address the medium-term challenge of achieving and sustaining higher and more inclusive private-sector-led growth and job creation.

IMF approved a 12-month Stand-by Arrangement for Egypt, with access equivalent to about $5.2 billion by the end of June. 

This new arrangement aims to help Egypt cope with challenges posed by the COVID-19 pandemic by providing Fund resources to meet Egypt’s balance of payments needs and to finance the budget deficit. “The Fund-supported program would also help the authorities preserve the achievements made over the past four years, support health and social spending to protect vulnerable groups, and advance a set of key structural reforms to put Egypt on a strong footing for sustained recovery with higher and more inclusive growth and job creation over the medium term.

The reform program will be monitored through semi-annual reviews. The first review would be in December 2020. 

Moreover, Inflation is projected to rise from 5.8 percent (y/y) in FY2019/20 to about 8 percent on average in FY2020/21. “The increase reflects several underlying factors including unfavorable base effects.”

The annual consumer price inflation recorded 5.7 percent in 2019/2020, compared to 13.9% in 2005/2006. The decline of inflation recorded the lowest levels in 14 years during fiscal year of 2019/2020 due to the decrease in food prices.

It further stated that public debt is projected to rise to 93 percent in FY2020/21 before resuming its downward path accompanied by a planned return to primary surpluses of 2 percent of GDP.

“To prepare for a more prolonged economic support, including the government’s purchases of grains and medical supplies to bolster its strategic stockpile to protect food and health security, the current baseline envisages primary surpluses of 1.4 and 0.5 percent of GDP in FY2019/20 and FY2020/21, respectively.” the report noted.