The World Bank predicted that the Egyptian economy will register a growth of 3.9% in the current fiscal year (FY) 2016/2017 ending in June.
In a previous report issued in January, the World Bank expected the GDP growth to reach 4% in the same FY then set off to reach 4.7% and 5.4% in the two fiscal years that follow. Yet, on Monday, the bank’s most recent report set its estimations to 4.6% and 5.3% in the FY 2017/2018 and 2018/2019 respectively.
According to the report, private investment is expected to pick up only in the second half of FY 2017, supported by enhanced competitiveness following the depreciation of the currency and the gradual implementation of business climate reforms.
Egypt floated the pound in November 2016 in a bid to attract dollar inflows and return foreign investors, who have been reluctant to invest in Egypt since January 2011. The exchange rate then jumped from EGP 8.88 to EGP 18.
The government is now implementing economic reforms, including the application of a value-added tax (VAT) and amending investment laws.
However, the report added that growth will likely be undermined by the slower growth of private consumption, which is expected to be negatively affected by the record-high inflation rates.
Tourism is also expected to steadily recover as a result of a weaker currency, the World Bank stated.
Moreover, the report noted that policy slippage and absence of real-sector reforms may negatively impact the anticipated economic recovery, adding that deteriorating security risks can adversely affect the recovery of the tourism sector, traditionally a main source of revenue and foreign currency.
With regard to inflation, the World Bank said that adopting a prudent monetary policy is projected to bring inflation down to 11.3% in FY 2019, down from 20.1% in 2017, after the one-off effects of depreciation, subsidy reforms, and the introduction of the VAT dissipate.
The World Bank also pointed out that the depreciation in the value of the Egyptian pound has led to a big jump in the inflation rate, which recorded its highest level at 32.5% in March.
High inflation has contributed to the aggravation of social conditions, given the persistently high unemployment, according to the report.
The fiscal deficit is projected to narrow to 10.5% in FY 2017, contingent on the government’s commitment and ability to sustain its fiscal consolidation plan, the report read.
It added that the implementation of the VAT, the expected increase in the VAT rate to 14% from the current 13%, and efforts to improve tax collection will all increase revenues, while expenditures will continue to be contained.
In addition, the report expected the budget deficit to reach 9.2% of the GDP in FY 2017/2018, then to 7.3% in the next FY.
Finally, it noted that the current account balance will reach 3.8% in 2018/2019 for a number of reasons, including increased remittances transferred through official channels.