IMF expects 4% growth for Egypt in FY 2016/17 compared to government expectations of 5.2%

Shaimaa Al-Aees
4 Min Read

The International Monetary Fund (IMF) expects a 4% growth for Egypt in the fiscal year (FY) of 2016/2017, according to the World Economic Outlook (WEO) for October 2016 entitled “Subdued Demand Symptoms and Remedies” on Tuesday.

The IMF said that Egypt’s real GDP growth for FY 2014/2015 reached 4.2%, while it expects a 3.8% growth in FY 2015/2016, and 6% in FY 2020/2021.

In the meantime, the Egyptian government forecasted a 5.2% growth in FY 2016/2017, while it expected 4.4% in FY 2015/2016, according to state budget for FY 2016/2017.

Cairo-based senior economist at Arqaam Capital Reham El-Desoki said that the rise in Egypt’s GDP growth forecast is due to the government’s expectations that the reforms being implemented in FY 2016/2017 could reflect positively on the private sector, leading to higher economic growth in the second half of the current fiscal year. In addition, the government increased investment spending for the budget for this fiscal year, especially on infrastructure projects. The IMF’s expectations are lower, however, as it awaits evidence of the outcome of these reforms and could then amend its growth forecast.

El-Desoki expects that growth could reach 4-4.5% this fiscal year and could increase to 5% when the US dollar shortage problem is resolved in the second half of FY 2016/2017.

Meanwhile in the WEO, the IMF projected that global growth will slow to 3.1% in 2016 before recovering to 3.4% in 2017.

The WEO said that the forecast, revised down by 1% for 2016 and 2017 relative to April, reflects a more subdued outlook for advanced economies following the UK vote to leave the European Union and weaker than expected growth in the United States.

Further, the IMF expects the consumer price (inflation) in Egypt will decrease to 10.2% in FY 2015/2016 compared to 11% in FY 2014/2015, while predicting that inflation will increase to reach 18.2% in FY 2016/2017. However, it forecasted a large decrease in inflation for FY 2020/2021—down to 7.1%.

Nevertheless, the Egyptian government has cited different expectations in its state budget for current FY 2016/2017, with inflation forecasted to reach 9.7% in FY 2015/2016 and 11.5% in FY 2016/2017.

Commenting on the higher IMF inflation projection in FY 2016/2017, El-Desoki said that inflation is expected to average 14-15% in FY 2016/2017 and may reach 18% by the end of 2016 or early 2017 if fuel prices increase.

She added that the inflation expectation is high compared to the last FY due to the US dollar shortage, resulting in a higher foreign exchange reserves rate on the informal market, and implementation of fiscal reforms.
The unemployment rate reached 12.9% in FY 2014/2015 and the IMF expects this to register 12.7% in FY 2015/2016, while the government’s expectations are 12.2%.

The IMF expects the unemployment rate to be 12.3% in FY 2016/2017, compared to the government’s forecast of 11.5% for the same period.

The IMF projected that the current account balance shortage will increase to 5.8% of GDP in FY 2015/2016 compared to 3.7% of GDP in FY 2014/2015. In addition, the IMF forecasted that the current account balance shortage will drop to 5.2% in FY 2016/2017 and down to 2.2% of GDP in FY 2020/2021.

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