Egypt’s GDP growth rate expected to fall to 4% in 2017: World Bank

Mohamed Samir
4 Min Read

In its report “Global Economic Prospects”, the World Bank stated that among oil-importing economies, growth in Egypt has slightly declined to 4.3 % in fiscal year (FY) 2016. This comes as a result of foreign currency shortages which feed manufacturing and a decline in tourism after the crash of a Russian aeroplane in the Sinai Peninsula in October 2015. However, Egypt’s GDP is envisaged to bounce back to 5.4% in 2019.

Moreover, falling oil prices helped Lebanon, Morocco, and Tunisia lower their current account deficits in 2016. Egypt, on the other hand, experienced balance of payment pressures stemming from a drop in remittance inflows and weakened tourism activity following several high-profile terrorist attacks.

More than 70% of remittances to Egypt came from GCC countries in 2014 and 2015.

Consequently, the report indicates that Egypt’s progress in reducing its current account deficit in the three years leading up to 2014 was in vain, with the deficit registering 5.5% of the GDP in FY 2016. The report added that Egypt’s debt stands at nearly 100% of the GDP, almost 95% in Jordan, and close to 145% in Lebanon.

Furthermore, oil-importing countries are expected to experience broad-based growth acceleration during the forecast period, with growth returning to just under its long-term average by 2019. In Egypt, the pace of growth, currently predicted to rise to 5.4% in FY 2019, is highly dependent on two factors: how quickly the economy can adjust to the flotation of the Egyptian pound last November, and how rapidly the government applies fiscal consolidation.

The report indicates that the sharp recovery of investment growth in 2015 to 4% was the result of the efforts to address infrastructure needs in Egypt and Morocco, the two largest oil-importing economies in the region. The private sector contributed more strongly to investment growth in Egypt than the public sector—a typical pattern among oil importers.

Even with the recovery in 2015, investment growth in oil-importing countries was still below the long-term average of 5.1%. The sharpened balance of payments and fiscal pressures in Egypt were likely accompanied by weaker investment growth in 2016. However, recently implemented structural reforms may lift investment in the medium-term.

In regards to inflation, in most oil-importing economies it remains low. However, Egypt is an exception as high rates of inflation were accompanied by a growing gap between the official and unofficial exchange rates for much of 2016, though the gap closed following the flotation of the Egyptian pound in early November.

The report concluded that although banking sector indicators remain sound in Egypt, reliance on banks to finance growing government budget deficits and the foreign currency shortage is negatively affecting and restraining business and household borrowing.

Consequently, the Central Bank of Egypt must navigate the recent move to a more liberal exchange rate regime. Gradually reducing inflation is a priority, including ensuring that the new value-added tax results in only a one-time increase in inflation rather than an ongoing spiral.

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Mohamed Samir Khedr is an economic and political journalist, analyst, and editor specializing in geopolitical conflicts in the Middle East, Africa, and the Eastern Mediterranean. For the past decade, he has covered Egypt's and the MENA region's financial, business, and geopolitical updates. Currently, he is the Executive Editor of the Daily News Egypt, where he leads a team of journalists in producing high-quality, in-depth reporting and analysis on the region's most pressing issues. His work has been featured in leading international publications. Samir is a highly respected expert on the Middle East and Africa, and his insights are regularly sought by policymakers, academics, and business leaders. He is a passionate advocate for independent journalism and a strong believer in the power of storytelling to inform and inspire. Twitter: LinkedIn:
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