IMF Raises Egypt’s Growth Projections to 2.8%, Significant Risks Expected Amid COVID-19

The International Monetary Fund (IMF) has raised its projections for Egypt’s real GDP growth for FY2020/21 to 2.8 percent, up from 2 percent projected in June, reflecting the milder than-anticipated contraction in the country’s economy, making it likely one of the few countries to record positive growth (around 1.5 percent) in 2021.



The revision came amid the IMF executive board’s completion of first review of Egypt’s economic reform program under the 12-month Stand-By Arrangement (SBA) loan, announced , allowing the authorities to obtain $1.6 billion, which is the second tranche of the loan.

The IMF expects modest recovery in all sectors in Egypt except tourism, which is expected to see a much more protracted recovery.

The IMF attributed this to the global travel disruptions that are expected to linger well into 2021, as well as Egypt’s stronger base in FY2020/2021 that implies a less sharp growth for FY2021/2022 than previously projected (revised to 5.5 percent from 6.5 percent).

The FY2020/2021 current account projection is mostly unchanged from June’s projections, although with higher and broadly offsetting levels of remittances and imports than previously projected, according to the IMF.

Moreover, the IMF expects significant risks to Egypt’s economic outlook, including the second wave of COVID-19, less favourable financing conditions for emerging markets, and the drop in remittances.

“With the growing numbers of countries experiencing a second wave of the pandemic, and the numbers rising in Egypt as well, uncertainty remains high, particularly around the evenness and pace of global recovery.

Recent capital inflows have somewhat offset lower tourism revenues, but the repricing of risk assets by financial markets could produce a new bout of portfolio outflows while stable remittance flows may not prove durable.

Sharp increases in unemployment, poverty, and inequality could also undermine public support for the economic program, while materialization of contingent liabilities could adversely affect the debt trajectory,” said IMF.

On the other hand, the IMF welcomed the Egyptian authorities’ plan to provide any additional support to vulnerable groups and sectors in the event of a second wave of COVID-19, adding that Egypt’s economic recovery should allow resuming the pre-crisis primary surplus of 2 percent of GDP in FY2021/2022 in order to anchor a return to a downward trajectory in public debt and preserve macroeconomic stability.

It added that sustained progress in shifting toward longer-term debt issuance will help reduce gross financing needs as well and improve the risk profile of public debt by lowering rollover risks.

To safeguard the budget, IMF pointed out that the fuel price adjustments should continue to be in accordance with the indexation mechanism introduced in 2019 by ensuring that retail prices adjust to changes in the exchange rate and global oil price.

In this respect, the IMF noted that Egypt successfully completed a fuel subsidy reform that reduced the fiscal burden of fuel subsidies from 3.3 percent of GDP in FY2016/2017 to 0.4 percent in FY2019/2020, adding that consumption of petroleum products declined by 2.1 percent in FY2018/2019.

It also stressed that continued progress on fiscal reforms is important to provide additional space for high priority spending on health and education, including a timely completion of the medium-term revenue strategy (MTRS) and speeding up the planned public expenditure review to boost social protection.

The IMF also supported Egypt’s ongoing calculation of tax expenditures on corporate income tax and encouraged the authorities to extend the assessment to the rest of the tax system, adding that the new customs law should help reduce lengthy delays in cross-border trade that remain a constraint on investment, but the impact will depend on the fairness and consistency in the implementation.

It added that sustained progress on structural and governance reforms is essential to foster higher, greener, and more inclusive private-sector-led growth, including continued focus on enhancing the transparency of state-owned enterprises, ensuring a level playing field for all economic agents, and removing bureaucratic obstacles to private sector development.

On the other hand, under the SBA programme, Egypt has to pass the draft customs law that streamlines customs procedures to improve the business climate by the end of March, complete public expenditure review to enhance social protection by the end of April, develop a reform plan for the National Investment Bank (NIB) approved by the prime minister in order to strengthen public finances and contain risks to the financial sector by the end of January.

Egypt received the first tranche of the SBA loan in June as an immediate disbursement, after obtaining the IMF’s executive board approval announced on 11 May, to address COVID-19’s impacts.

On the second tranche, the IMF said that Egypt has managed the COVID-19 pandemic and its related disruption to economic activity by adopting proactive measures to address health and social needs and support the sectors most directly affected by the crisis.