The World Bank has maintained its expectations that Egypt’s economy will grow at a 5.8% clip this fiscal year and accelerate to 6% in FY 2020-2021 — assuming that macroeconomic reforms continue and the business environment improves, it says in its latest economic update (pdf). This is slightly lower than the government’s FY 2019-2020 target of 5.9% growth. Net exports of goods and services, a contraction of oil imports supported by increased natural gas production, and an increase in private investment have all been driving growth. “Egypt is sustaining its robust growth, fiscal outturns are improving, and external accounts are stabilizing at broadly favorable levels,” the report said.

Egypt continues to lead growth in the MENA region, thanks to exchange rate, fiscal, and energy reforms improving the macroeconomic climate. The report also highlights improving primary and budget balances, and decreasing debt as positive indicators. The Central Bank of Egypt’s recent rate cuts, prompted by “a remarkable decline” in headline inflation, are expected to improve private sector cash flow, the report says.

Structural reforms and increased private sector participation essential to sustain growth: Challenges to continued growth include “sluggish” non-oil exports, low levels of FDI, and a challenging budget structure, with low tax revenues being insufficient to finance development needs. The bank warns of an urgent need for a new wave of structural reforms, including removing core institutional constraints and supporting private sector expansion, to drive productivity and job creation. Private sector job creation has been fairly weak, the PMI for FY2018-2019 has been “relatively feeble,” and credit extended to private businesses was only 22% of total domestic credit in the fiscal year, the report said.