Egypt’s GDP growth expected to gradually recover as of FY 2021/22: Arab Monetary Fund

Hossam Mounir
5 Min Read

The Arab Monetary Fund (AMF) expected that Egypt’s GDP growth will gradually recover starting from fiscal year (FY) 2021/22.

The size and pace of this recovery depends largely on the coronavirus (COVID-19) vaccine rollout, the recovery of tourism and manufacturing industries on the supply side, and the recovery of private sector investment on the demand side.

AMF said that Egypt’s GDP growth in FY 2020/21 will be lower than a year earlier, affected by the coronavirus pandemic and the resulting precautionary measures’ impact on the economy.

The preliminary data of the Egyptian economy indicated that the country’s real GDP growth recorded 2% during the fourth quarter of 2020, however, a gradual recovery towards pre-coronavirus level is expected, according to the fund.

AMF’s Arab Economic Prospects report revealed that the unemployment rate in Egypt decreased at 7.2% during the fourth quarter (Q4) of 2020, compared to about 7.6% in Q3 2020, and 9.6% during Q2 of 2020, following the imposition of precautionary measures.

It explained that the return of direct flights and the flow of tourism, especially Russian, to the Egyptian tourist resorts onthe Red Sea is expected to positively affect the recovery of the performance of the tourism sector, and thus increase its contribution to the growth of GDP as of June 2021.

It added that the expansion of COVID-19 vaccine rollout in various governorates is expected to alleviate the prevailing uncertainty about the performance of economic activities since the spread of the pandemic.

According to the fund, the second phase of the Egyptian economic reform programme, which is concerned with the structural reforms, will give an additional boost to economic growth rates during 2022 and in the medium term.

According to the report, this comes through developing the real economy based mainly on agriculture, industry, communications and information technology, with a focus on improving the productivity of various sectors and increasing their competitiveness in light of an export-oriented growth strategy.

It pointed out that these reforms are expected to contribute to increasing the resilience of the Egyptian economy and raising its ability to absorb external and internal shocks, thus supporting the economy’s ability to achieve balanced and sustainable growth rates.

In the same context, the Fund expected that the inflation rate in Egypt would reach 5.3% during 2021, and rise to 5.9% in 2022.

The Fund clarified that the level of the annual general inflation rate is expected to be affected by the negative impact of the base period, which is related to the return of the monthly general inflation rates to their normal levels in 2021, but the annual rates will continue to record rates within the target rate range of 7%(±2%) during Q4 of 2022.

The fund confirmed that the prices of some petroleum products in Egypt have reached the levels of cost coverage, and thus the international prices of petroleum are reflected on domestic inflation through the decisions of the automatic pricing committee for petroleum products on a quarterly basis with a maximum of ±10%.

The Fund explained that the reform of energy subsidy systems led to the provision of financial savings that enabled the government to adopt a number of measures to face the consequences resulting from the spread of the emerging coronavirus pandemic and its repercussions on the Egyptian economy.

It is expected that the presence of a sufficient stock of strategic goods and the stability of the exchange rate in light of a gradual recovery of various activities will contribute to containing inflationary pressures, and the pandemic has affected inflation rates from the demand side since the beginning of its spread in Egypt during 2020, and this comes due to the impact of the spread of the pandemic and the accompanying precautionary measures. to reduce its spread.

It explained that this had a negative impact on the income levels of Egyptian families and the levels of employment, which led to a decrease in the levels of domestic demand and eased pressures on local price levels.

Based on the expectations of economic recovery and stable inflation expectations, in addition to the expected real monetary conditions, it is proposed that annual inflation will be recorded in single digits during 2021 and 2022.

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