Economists question government’s ability to meet GDP target for FY 2014/2015

Abdel Qader Ramadan
5 Min Read

Economic experts have voiced scepticism over the government’s ability to meet the finance ministry’s revised GDP target for the 2014/2015 fiscal year (FY) of EGP 2.4tn, a 20% increase from EGP 2tn in FY 2013/2014.

In his statements over the weekend, Finance Minister Hany Kadry Dimian said that the government aimed to increase the rate of growth to 3% during FY 2014/2015, with the expectation that the economy will grow gradually—between 4 and 5.8%—over the next three years.

The government also lowered the target deficit ratio in the new budget to 10%, compared to 12% in the FY 2013/2014 budget, according to Dimian.

A former government official who preferred to remain anonymous said that “a significant increase in the value of the GDP is a tactic used by some governments to control the deficit ratio going forward.”

“The former finance minister, Boutros Boutros-Ghali, was an expert in calculating deficit figures to show growth and improvement in the economy… Dimian is an excellent student of Boutros-Ghali’s and is now following in his footsteps,” said the source.

“The anticipated growth increase could be achieved through boosting tourism to normal rates and increasing exports,” former Finance Minister Samir Radwan told Daily News Egypt.

Radwan said that foreign investments would be a factor in increasing growth and a subsequent increase in GDP, but added that the nation requires “a comprehensive review of the laws governing investment in Egypt, as well as a jump-starting of the initiative to refine the laws, because the existing legislation and government entities are part of the problem. Minor adjustments will not do; a complete overhaul is required.”

“Restoring security is necessary to achieving the government’s goals for growth and numbers that were announced and this is not impossible to achieve,” Radwan added, pointing out that a return of tourism and investment in the petroleum sector especially will help increase GDP.

Radwan said there is a desire to invest in Egypt and help the nation overcome its economic crisis.

“The Gulf countries have recently made a number of visits that revealed their hopes to invest in Egypt, as well as a desire to bring Gulf tourism back to Egypt. They said that as long as Al-Sisi is in the [presidential] palace, we will spend summer in Egypt,” said Radwan.

“The increase anticipated by the government in the GDP exceeds normal rates, but in reality a definite desire to decrease the value of the deficit through restructuring measures to reform the economy was revealed,” said Hany Genena, head of research at Pharos Investment Bank.

Genena explained that GDP growth was valued at 16.6% in 2010, 10.6% in 2011, and 12.7% in 2012, and is expected to reach 13% in 2013 through extrapolations for a normal year and taking inflation rates into account.

“The government has predicted a GDP increase for the 2014-2015 fiscal year at a rate of 20%, which is a large percentage. The targeted growth rate is 3% and the annual inflation rate is in the range of 8%, which means that the GDP cannot exceed more than 12-15% at best, in light of low inflation rates,” said Genena.

Genena said that in the end,  the proportion of the deficit to GDP should not be a concern, as long as the government takes measures to decrease the value of the deficit to EGP 240bn through structural economic reforms.

“Achieving the expected growth rate of 3% is not difficult, as it is a normal rate, and failure to do so would be a problem of the ailing economy,” He added, pointing out that the tourism and oil sectors suffer from serious issues and that solving them will compel growth forward in a noticeable way.

“Evidence indicates that there is demand from investors on the stock exchange. BP reached an agreement with the government regarding operating the oil field in northern Alexandria, and Ripplewood America has invested in SODIC and Palm Hills. There are real investments on their way to Egypt and they will contribute to growth and a higher GDP.”

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