Egypt outperforms regional oil importers on GDP, export growth; lags behind in containing inflation and debt

Egypt outperforms regional oil importers on GDP, export growth; lags behind in containing inflation and debt: Egypt’s projected GDP growth rate is expected to outstrip the average among oil importing countries in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) over the next two years, the IMF said in its April 2018 Regional Economic Outlook (pdf). According to the report, GDP growth across MENAP oil importers is expected to average at 3.6% and 3.2% in 2019 and 2020, respectively. Egypt, meanwhile, is expected to see its GDP grow 5.5% and 5.9% during this period, according to IMF figures.
Export growth in Egypt “is expected to remain strong” on the back of new natural gas discoveries and recovering tourism (with the aid of a low base effect), despite regional export growth being projected to slow to 7% and 6.5% in 2019 and 2020, respectively. Jordan is also expected to see its export growth picking up over the coming period, but the regional trend will be driven downwards “due to weaker demand in key trading partners.”
Inflation remains an issue: An expected spike in inflation figures in Egypt as a result of the next wave of fuel subsidy reform in the summer is projected to accelerate regional inflation to 11.3% this year. Pakistan’s weakening exchange rate is also anticipated to contribute to higher inflation levels across the region. Pharos Holdings has previously said it anticipates inflation averaging 14-14.5% for the rest of the year, before falling slightly to 13.3% by the end of December. EFG Hermes expects inflation to sit at 14% in May and cool gradually to c. 10% by the end of the year.
Debt is also still weighing on Egypt’s economic wellbeing — but it’s the same across oil importers. According to the report, public debt in most oil importers across the MENAP region is “well above the emerging market threshold,” including Egypt, Jordan, Lebanon, and Sudan, all of which have public debt levels north of 80% of GDP. Egypt will also have a little more than USD 12 bn (the equivalent of around 5% of GDP) of external debt maturing in FY2019-20, the IMF notes. “This presents an increasingly difficult choice for policymakers as they weigh rebuilding buffers to strengthen resilience to near-term risks against addressing challenges to growth. High public debt limits options for fiscal policy to help offset the impact of weaker external demand on near-term growth,” and leaves governments with inadequate breathing room to invest in key areas such as health, education, and a “sustainable safety net.”
This all comes in the midst of significant regional and global headwinds, including volatile global financial conditions, continued trade tensions between the US and China, and increased uncertainty as a result of volatile oil prices. These factors, the IMF notes, “amplify the challenges faced by policymakers in their efforts to support growth.” Unrest across the region is also creating economic uncertainty, with protests reaching “an all-time record in Sudan.” On the flipside, Morocco, Egypt, and Lebanon have seen “for different reasons, fewer reported expressions of social discontent than in the recent past.”