EBRD Cuts Egypt’s Real GDP Growth in 2023 By 0.1%, Increases Forecast By 0.2% in 2024

For the second time since February, the European Bank for Reconstruction and Development (EBRD) has downgraded its forecast for Egypt’s real GDP growth to 4.2 percent, a 0.1 percent decrease from its outlook in February and increased its forecast by 0.2 percent in 2024.

This came within the Regional Economic Prospects report which the EBRD released on the sidelines of the bank’s annual meetings held in Uzbekistan.

During the current FY 2022/23, closing by the end of June, the report expected Egypt’s real GDP growth to stand at four percent, before rebounding to 4.8 percent in FY 2023/24 rolled out by 1 July.

On the other hand, the report raised its projection for the country’s GDP growth in 2024 to 5.2 percent, up from the five percent it had forecasted in February.

“Tailwinds include higher gas exports, Egypt’s role as an energy hub for the eastern Mediterranean, and the boost from implementing business-environment reforms under the IMF-supported programme, including empowering the private sector, fostering competition, and addressing fiscal and external vulnerabilities,” the report explained.

Egypt is ramping up its efforts in terms of levelling the playing field with the private sector with an aim to increase its share in the local economic activity to 65 percent, up from the current 30 percent.

This effort translated Egypt’s commitment to the IMF to reducing the government and military footprint in the country’s economic activity for the private sector through the government’s initial offering programme (IPO) and offering investment opportunities in state-owned assets for strategic investors.

Otherwise, the report expected headwinds to arise from further inflationary pressures, tighter monetary conditions, challenges in obtaining external financing – notably from Gulf countries – and any slowdown in the implementation of structural reforms, including delays in the sale of state assets.

In March, Egypt named 32 state-owned companies under its privatization programme. Only Paint and Chemicals Industries state-owned PACHIN has attracted an Emirati investor.

Meanwhile, the government, in a sudden move, announced on Sunday the sale of a 10 percent stake in the state-owned Telecom Egypt that was not already named among the offered companies.

Egypt’s real GDP growth decelerated to 4.2 percent in the first half (1H) of the current FY 2022/23 (July-December 2022), well below the nine percent seen in the same period of the previous FY.

This is mainly driven by the drop in the manufacturing and construction sectors that were affected by foreign currency shortages, in addition to the lower Suez Canal and tourism revenues that were affected by the war on Ukraine, according to the report.

On the Egyptian pound's performance against the US dollar, the report noted that the devaluation of the Egyptian pound together with the hike in international commodity prices has fed the inflation in the country leading it to approach 33 percent, despite the 10 percent (1000 bps) interest rate hike the Central Bank of Egypt (CBE) has applied since March 2022.

The report estimated the Egyptian pound lost more than 50 percent of its value against the US dollar in over a year (between March 2022 and April 2023) amid heightened external vulnerabilities and the CBE’s decision to shift to a flexible exchange rate regime as the fulfilment of its commitment to the IMF.

On a wider level, the growth in the southern and eastern Mediterranean region, where Egypt is classified, slowed down sharply in 2022, as adverse external conditions interacted with country-specific vulnerabilities.

Additionally, the report pointed out that the war on Ukraine negatively affected all regions' economies through higher imported inflation and increased fiscal and external vulnerabilities.

Tighter global monetary conditions exerted pressure on external accounts, and global supply chain disruptions and the economic slowdown in Europe further held back growth in some economies.

In some economies, implementation of much-needed reforms has been delayed, while reliance on volatile drivers of growth such as agriculture and tourism held back growth," the report explained.

In 2023, the report projected a slight rise in the region’s average growth as economies adapt to the impact of the war on Ukraine, agriculture rebounds, and reforms progress.

Yet, the report highlighted downside risks which reflect challenging global inflation outlooks and political uncertainty, expecting the region’s growth to recover in 2024 with average development above 4 percent, as reforms advance in all economies.