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Editor in Chief Mohamed Wadie

Reuters: Egypt's Economy To Grow 5.7% Next Fiscal Year


Wed 23 Oct 2019 | 08:06 PM
Taarek Refaat

As Egypt nears the end of an IMF-backed economic reform program, a Reuters poll indicated that Egypt's economy is expected to grow by 5.5 percent in the fiscal year that began in July and 5.7 percent the following year.

The growth of the Egyptian economy is supported by improved tourism, strong remittances from Egyptian workers abroad and the start of production from newly discovered gas fields.

Growth forecasts for the current fiscal year are below the government's target of 6-7 percent, and slightly below last year's 5.6 percent.

Analysts had expected Egypt's GDP growth to slow to 5.5% in fiscal year 2021-22, however, Prime Minister Mostafa Madbouly said Last week that he expects growth to reach 8 percent by 2022.

Next month, Egypt will complete an economic reform program linked to the International Monetary Fund loan agreement Egypt signed in November and received in full. The aim of the program is to reduce the budget deficit and the current account balance.

The program included the liberalization of the exchange rate of the Egyptian pound to witness a sharp decline in value, the elimination of almost all subsidies on fuel, the introduction of value-added tax and raise the prices of electricity and transportation.

In its fifth review of the program published this month, the IMF said Egypt should create jobs for 3.5 million people over the next five years.

Egypt has struggled to attract foreign investment (FDI) since the 2011 uprising, except for the oil industry, where renewed interest after the discovery of the largest gas field in the Mediterranean off Egypt's coast in 2015.

“At the moment, capital spending growth indicators remain weak," said Director of research at Naeem Holding Allen Sandeep, assuming a further 300 basis points cut in interest rates with the hope for 2020-21 to finally begin to impact the economy.

"Retail lending growth exceeded 20% and could rise to more than 30% next year. For us, this is an indirect indication that the non-oil private economy may finally flourish." Sandeep added

Egypt's central bank (CBE) cut its overnight deposit and lending rates twice in a row in August and September by a total of 250 points to 13.25% on deposits and 14.25% on loans.

As inflation eases, economists expect the CBE to further cut interest before the end of 2019. Moreover, Analysts expect annual consumer price inflation in Egyptian cities to drop to 10.2% in FY 2019-20 from 33% in July 2017, reaching 9.2% in FY 2020-21 and 8.9% in the following year.

The survey showed a marked improvement in the outlook compared to the previous three months and analysts expect inflation in the current fiscal year to reach 13%.

"We expect prices to continue falling this October, before rising to the one-digit high at the end of the year, '' said  Jacques Verin, an economist at NKC African Economics.