FinMin to set new medium-term economic targets as global macro headwinds build
EXCLUSIVE- FinMin to set new medium-term economic targets as global macro headwinds build: The Finance Ministry is on track to specify “more realistic” medium-term targets for Egypt’s key macro indicators in light of a challenging outlook for global growth and volatility in emerging markets, according to official documents seen by Enterprise.
It’s a tough pill to swallow, but acknowledging the headwinds reflects maturity on the part of policymakers. Among the highlights:
GDP growth: The ministry could revise downward its forecasts for GDP growth for FY2020-2021 to 6.5%, down from an initially forecasted 7.2%. GDP growth is expected to reach 7% in FY2021-2022, according to the amended targets. The ministry had previously also cut its expectations for GDP growth in the current fiscal year to 5.6% from 5.8%, and the upcoming fiscal year to 6% from an initial 6.5%.
Interest rates and oil prices: The ministry is working with the assumption that interest rates will remain high at 15.5% in FY2019-2020, after initially expecting the Central Bank of Egypt to cut rates to an average of 10.7%. The ministry now sees rates averaging 11.5% in FY2020-2021 and 10% in FY2021-2022. It is also budgeting for oil at USD 68 per barrel in FY2020-2021.
Inflation: The ministry expects inflation to cool to an average of 10.5% in FY2019-2020 (up from an earlier projection of 9.7%) and to continue declining over the following two years to 9.1% in FY2020-2021 (previous forecast: 7.1%) and 8% in FY2021-2022.
Budget deficit: Egypt’s budget deficit is now expected to narrow to 6.2% of GDP in FY2020-2021 and 4.8% in FY2021-2022, according to the ministry’s revised projections. Initial forecasts had set a budget deficit target of 5% for FY2020-2021. The budget deficit is expected to hit 7.2% of GDP in the next fiscal year, the Finance Ministry said in its draft state budget.
Public debt is expected to reach 84.8% of GDP in FY2020-2021, up from a previous forecast of 80%. The ministry is looking to further narrow debt levels to 79.4% by FY2021-2022.