IMF expects Egypt’s public debt to decline to its pre-pandemic levels by 2026

Nehal Samir
8 Min Read

The International Monetary Fund (IMF) expects that the ratio of public debt to GDP in Egypt would decline to pre-pandemic levels by 2025 or 2026.

According to the regional economic outlook that was released on Wednesday, the IMF expects that public debt in Egypt will reach 94% of GDP during the current FY, and that it will decline to 89.6% of GDP in the next FY.

“Over the medium term, persistent output losses will have long-lasting effects on revenue generation across the region, despite the observed cyclical recovery — particularly in EM and MI countries and LICs,” according to the report.

Talking about the debt in a press briefing on the regional outlook, Jihad Azour — Director of the Middle East and Central Asia Department at the IMF — said that debt in Egypt is high, as is the case of many countries importing oil, and debt is very important when adopting economic policies.

“In Egypt’s case, foreign debt is not that high, the main part of Egypt’s debt is in its local currency,” Azour continued.

Notably, on Tuesday, Egypt’s President Abdel Fattah Al-Sisi directed the government to announce a clear plan to be adhered to in order to reduce debt-to-GDP ratio.

The IMF also expects Egypt’s consumer price inflation to reach 10.4% in the current FY, then to decline to 8.8% in the next FY.

Talking about the inflation rates in Egypt, Azour said that the increase in inflation following the COVID-19 pandemic has a huge impact on many countries in the region, including Egypt — where inflation reached 10.5% for this year — and this is higher than the goal that was expected within the monetary policy.

He continued that this of course goes back to the changes at the economic level, the pressure on supply chains, and the rise in demand.  There is also the increase in oil prices that led to a huge increase in food prices, which of course has impacted the food index and food prices in Egypt.

“The government and Central Bank of Egypt worked on changing interest rates in order to reduce inflation, and this is one of the main goals to preserve price stability, and also the stability of the economy as a whole,” Azour stressed.

The IMF’s new loan backed programme

Azour said that the IMF has provided much support to Egypt over the last few years; it has provided two programmes to support the country’s reform agenda back in 2016, and it also helped Egypt address the shock of the coronavirus in 2020. He stressed that the IMF stands ready to support Egypt going forward.

Notably, the Egyptian government is working with the IMF on designing a new loan-backed programme to support the Egyptian economy and address the ongoing challenges against the severe repercussions of the war in Ukraine on the globe.

In that regard, Azour mentioned that authorities have requested support from the IMF, and that the team has started technical discussions with the authorities, mentioning that these discussions are progressing.

Direct and indirect impact of war in Ukraine:

“Egypt is one of the countries that has been facing the direct and indirect impacts of the war in Ukraine. Direct impact because of the strong relations with Russia and Ukraine in terms of supply of food, and wheat in particular, but also the impact on tourism,” Azour explained.

In addition to that, Azour further explained that the indirect impact is because of the volatility we see in capital markets, and the impact of potential tightening or more than expected tightening of monetary policies.

He said that Egypt’s government has already started to introduce a certain number of measures by addressing the risk of inflation, adjusting interest rates, adjusting the exchange rate, as well as providing the fiscal package to provide additional protection to low-income people.

Furthermore, Azour said that Egypt’s case is equivalent to several emerging markets, where the tightening of monetary policy and advanced economy is having an impact in terms of an increase in spreads, an increase in rates, and also in terms of capital flows.

He said that the way to address this is through a comprehensive reform package that the Egyptian authorities are putting in place, and the IMF is in current discussion with them to find the best way to help them.

On Tuesday, Egypt’s President Abdel Fattah Al-Sisi announced that the Egyptian government will hold an international press conference soon to announce the state’s plan to deal with the global economic crisis.

“Egypt is currently facing external shocks from the war in Ukraine and from the volatility in the capital markets to make sure that these prices are under control. An increase in prices and inflation affects our social stability. We must make sure that our fiscal situation is geared towards protecting those who are the most in need and that it allows our economy to grow through capital investment,” he said.

“Therefore, it is normal to make sure that we have the right policy set and also, these are the moments in which one must rethink their priorities to maintain a high level of growth.”

Azour said that over the last five or six years, Egypt was able to maintain a fairly good level of growth, even in the last two years despite the impact of the pandemic.

He stressed that it’s important going forward to maintain a high level of growth to create the needed jobs for 800,000 young people who entered the market, but also to shield the economy from external shocks, especially that these shocks are affecting the balance of payments and also affecting the fiscal situation.

“We must make sure that through structural reforms, you allow the private sector to lead in terms of growth and to create additional value. These are the key pillars that the reform programme in Egypt must have,” Azour concluded.

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