Egypt’s economy to grow 2.5% in FY 2020/21, rebounding to 5.7% in FY 2021/22: IMF

Nehal Samir
5 Min Read
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The International Monetary Fund (IMF) has expected that the Egyptian economy will continue its positive growth this fiscal year (FY) 2020/21, recording 2.5%, though down from its projection in October’s world economic outlook (WEO) of 2.8%.

The IMF’s April WEO, released on Tuesday, mentioned that the Egyptian economy will rebound in FYs 2021/22 and 2025/26, to record 5.7% and 5.8% growth, respectively, compared to 3.6% in FY 2019/20.

The Fund also expected that Egypt’s average inflation rate will reach 4.8% in the current FY, compared to 5.7% in the last FY. 

It added that the country’s current account deficit will reach 4% of GDP in FY 2020/21, compared to the estimated 3.1% in FY 2019/20.

It also predicted that the unemployment rate in Egypt will register 9.8% during the current FY, compared to 8.3% in the previous FY.

In terms of the Middle East and Central Asia, the IMF projected that the GDP will reach 3.7%, 3.8% respectively in FYs 2020/21, and 2021/22, compared to -2.9% in the last FY.

Globally, after an estimated contraction of -3.3 % in 2020, the global economy is projected to grow at 6% in 2021, moderating to 4.4% in 2022. 

The contraction for 2020 is 1.1% less than projected in the October WEO, reflecting the higher-than-expected growth outturns in the second half of the year for most regions after lock-downs were eased and as economies adapted to new ways of working.

The projections for 2021 and 2022 are 0.8% and 0.2%, respectively, stronger than in the October 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year.

“Global growth is expected to moderate to 3.3% over the medium term—reflecting projected damage to supply potential and forces that predate the pandemic, including aging-related slower labor force growth in advanced economies and some emerging market economies. Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses,” according to the report.

The IMF warns that high uncertainty surrounds the global outlook, explaining that future developments will depend on the path of the health crisis, including whether the new COVID-19 strains prove susceptible to vaccines or they prolong the pandemic; the effectiveness of policy actions to limit persistent economic damage (scarring); the evolution of financial conditions and commodity prices; and the adjustment capacity of the economy. The ebb and flow of these drivers and their interaction with country-specific characteristics will determine the pace of the recovery and the extent of medium-term scarring across countries.

According to the report, the factors shaping the appropriate stance of policy vary by country, especially progress toward normalization. Hence, countries will need to tailor their policy responses to the stage of the pandemic, strength of the recovery, and structural characteristics of the economy.

Once vaccination becomes widespread and spare capacity in health care systems is generally restored to pre-COVID-19 levels, restrictions can begin to be lifted. While the pandemic continues, the IMF said policies should first focus on escaping the crisis, prioritizing health care spending, providing well-targeted fiscal support, and maintaining accommodative monetary policy while monitoring financial stability risks. Then, as the recovery progresses, policy-makers will need to limit long-term economic scarring with an eye toward boosting productive capacity (for example, public investment) and increasing incentives for an efficient allocation of productive resources.

The IMF stressed that strong international cooperation is vital for ensuring that emerging market economies and low-income developing countries continue to narrow the gap between their living standards and those of high-income countries.

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