Back to the complete issue
Thursday, 28 February 2019

Egypt economic growth to beat expectations- Capital Economics

Egypt’s economic growth will beat expectations as sovereign bond yields fall and the government’s austerity program draws to a close, according to a report by Capital Economics. The country’s debt-to-GDP ratio has also begun to fall back as the primary budget balance enters a surplus for the first time in almost 20 years. The report predicts that the debt ratio will fall to around 75% by 2024, thanks to the cuts made to the public wage bill. “This underpins our view that GDP growth will be stronger than most expect in the next few years,” the report states.

But risks still remain: Egypt’s large foreign currency debt (around 30% of GDP in FY2017/18) means that the government’s financial position is exposed to fluctuations in the exchange rate. Rapid increases in global commodity prices would also spell trouble for the subsidy bill, with the report estimating that a 10% rise in oil prices would increase spending on fuel subsidies by around 0.4% of GDP.

And there is still more to be done: While the report praises the government’s success in restoring stability to the economy, it raises concerns that it is taking its foot off the gas a little too early and urges it to do more. “In the coming years, the focus will shift to the bolder efforts that are needed to lift Egypt’s potential growth rate, but we are increasingly concerned that these will fall short,” the report says.

IIF joins the chorus calling for deeper reforms: Achieving sustained economic prosperity will require that the state and military-affiliated companies shrink their role in the economy, according to a report by the Institute of International Finance (IIF). State influence on critical economic sectors, control over land use and privileged status for infrastructure projects has resulted in “deep-rooted structural distortions” in the economy which hold it back from competing with more successful emerging markets.

So what does IIF want Egypt to do? Noting that fundamental changes to the economic system could be politically and economically destabilizing, the IIF says the government should first maintain its current fiscal and exchange rate reforms — then kickstart the privatization program.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Etisalat Misr (tax ID: 235-071-579), the leading telecoms provider in Egypt; and Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt.