Egypt's Economy: The Road Ahead

Over the past couple of years, the annual meetings of the International Monetary Fund (IMF) and World Bank in Washington have been the occasions for much lauding of Egyptian economic policy-makers. The spring meetings for 2019 held from 9 to 14 April in Washington were no different.

“Egypt has delivered under its programme,” IMF Managing Director Christine Lagarde told the opening press conference of the meetings in comments on Egypt’s $12 billion Extended Fund Facility (EFF) with the IMF.

Jihad Azour, director of the IMF’s Middle East and Central Asia Department, said “[Egypt’s] programme so far was very well implemented” during a press briefing on the Middle East and Central Asia economic outlook.

Egypt’s three-year programme, which began in November 2016, is now nearing completion. A fifth review is scheduled for June, when Azour said an IMF mission was expected to have detailed discussions with the government. A mission would be in Egypt in the next few weeks, he said.

“We very much hope that the next review… will be completed satisfactorily,” Lagarde said, adding that she had received assurances from Egyptian President Abdel-Fattah Al-Sisi “that they [Egypt] will stay committed in order to complete the programme and in order to deliver on their commitment.”

Lagarde met President Al-Sisi while he was in Washington for a meeting with US President Donald Trump last week.

Egyptian officials reiterated their commitment to reform while in Washington for the spring meetings. However, they denied an intention to pursue another programme or to request further IMF loans.

Speaking to the state Middle East News Agency (MENA) in Washington, the Central Bank of Egypt (CBE) governor said on Friday that Cairo was not in need of a new loan programme from the IMF.

However, Lagarde said she had assured Al-Sisi that the IMF remained available to continue to help in order to maintain stability and to make sure that growth continued to create more jobs.

At the same time, Minister of Finance Mohamed Maait showcased improvements in the economy in a meeting with top investment banks when he said that Egypt was targeting GDP growth of 5.9 per cent in the upcoming fiscal year as well as a primary budget surplus of two per cent. Egypt’s GDP growth for the current fiscal year is expected to be 5.5 per cent.

The minister added that the government was making tremendous efforts to sustain economic growth rates and improvements in the financial indicators by maintaining the downward trend of the budget deficit and debt as a percentage of GDP.

He said that economic growth in Egypt was based on growing activity and the growth of most economic sectors, reflecting the ability of the economy to meet all its challenges. He added that public debt had fallen from 108 per cent of GDP to 98 per cent currently. He said he expected it to fall to 93 per cent in June this year and 89 per cent in fiscal year 2019-2020, according to a Ministry of Finance press release.

Lowering the debt is one of the main objectives of the government’s reform programme.

Azour said it was now very important to continue investing in the digital economy and education and in ensuring that the stability of the economy would continue. He also said it was important to focus on structural reforms that would help the economy to grow faster and be led by the private sector.

“The key reform area will be how to improve the business environment,” he said. The private sector was the main engine of growth and job creation in Egypt because of its dynamism and because the public sector could not create more jobs, he added. Between 700,000 and one million new jobs are needed annually.

In that framework, Lagarde said she had raised the issue of youth entrepreneurship with President Al-Sisi, adding that young people needed space and the freedom to operate in order to contribute to economic development.

Similar points were raised by Mahmoud Mohieldin, senior vice president of the World Bank for the 2030 Development Agenda, in a speech he gave to the second annual conference organised by economic news outlet Hapi. He stressed the importance of attracting investment and highlighted the importance of exports. Both were needed to sustain the growth to create jobs, he said.

The proportion of exports to national income is lower than that in Egypt’s counterparts, Mohieldin said, pointing out that while the ratio of exports to national income in Egypt is 15 per cent, in Vietnam it reaches 101 per cent.

Other factors important for sustainable development included the creation of a database to monitor performance and guide policies and institutions to achieve sustainable development goals, he said.

These should be more focused on local development or the localisation of development, he added, saying that this was what made people in different villages, districts and cities feel the impacts of economic growth through improved education, healthcare and basic services.

Growth also needed to take place while protecting the most vulnerable sections of the population, and Azour stressed the importance of directing more money to social protection. He acknowledged that vulnerable sectors had benefited from social-protection programmes such as the Takaful and Karama welfare programmes that have softened some of the negative impacts of the reforms.

“Seventy per cent of the beneficiaries were women who had no skills or were illiterate,” Azour pointed out. “These programmes provide a minimum level of dignity. Continuing them is important, since people will feel that the reforms are now paying off,” he added.