Yasser Sobhi, Deputy Minister of Finance for Fiscal Policies, recently stated that the goal of his country would be to achieve financial discipline and bring its debt-to-GDP ratio below 85% of GDP within the next three years. In June 2024, Egypt reduced the external debt of public entities by around $4bn.
Speaking at a conference hosted by the Centre for International Private Enterprise (CIPE), Sobhi emphasised that Egypt is on the verge of a new phase of stability and economic growth, led by the private sector. He noted that the North African country is now open to partnerships with both local and international private sectors to build a more competitive, diversified economy capable of improving living standards.
Sobhi further highlighted efforts to encourage private sector involvement in key projects across transportation, health, education, and other public infrastructure and services. He also pointed out that significant progress has been made recently, with the coming days set to witness the North African country securing more public-private partnership (PPP) contracts, providing greater and better opportunities for private-sector engagement.
“We are pursuing ambitious fiscal reforms to strengthen the role of the private sector in driving development, expand the local production base, and enhance our competitiveness in global markets,” Sobhi said, further underscoring the efforts to improve public financial management, boost government spending efficiency, and achieve fiscal balance by easing the burden on the budget. Some of these steps include setting a cap on government spending and reprioritizing key sectors such as health, education, and infrastructure.
While stressing the success of the above-mentioned fiscal reforms, which are creating a business-friendly environment attracting and incentivising investment, the Deputy Minister of Finance for Fiscal Policies further added his government was working on improving the relationship between the tax system and the business community, building new bridges of trust, ensuring tax stability, simplifying administrative and tax procedures, promoting transparency, and fostering a business environment characterised by competitive neutrality.
The official also stated that a new package of investment incentives has been introduced through initiatives aimed at stimulating growth in vital sectors, particularly industry, exports, tourism, renewable energy, and technology.
Meanwhile, Egypt’s GDP growth rate slowed to 2.4% in the fourth quarter of fiscal year (FY) 2023/24, bringing the annual growth rate to 2.4%, down from 3.8% in the previous year. The slowdown has been attributed to a combination of factors including ongoing geopolitical tensions and global economic uncertainty.
“Despite these challenges, an improvement in economic activity is anticipated as the government implements prudent macroeconomic measures and strengthens public investment governance,” said the Ministry of Planning, Economic Development, and International Cooperation in its quarterly economic update.
“The ministry highlighted the importance of creating space for private sector participation and ensuring efficient resource allocation to key sectors. This will be further supported by the ongoing implementation of structural reforms, underpinned by three key pillars: building macroeconomic resilience and stability, enhancing the competitiveness of the economy and improving the business environment, and supporting the green transition,” reported Daily News Egypt.
The Suez Canal, the main economic lifeline of Egypt, saw a sharp activity decline, recording a 68% drop in the last quarter alone and a 30% overall decline for the year. This was attributed to risks associated with threats to international shipping routes in the Red Sea (a fallout of the ongoing crisis in Gaza and Middle East), leading shipping companies to divert their routes away from the Canal.
Sector-Wise Data Breakdown
The extraction sector also saw a 4.7% decline due to reduced oil and gas production, driven by a decline in foreign investments in new well discoveries and a slowdown in the development of existing wells. However, the Egypt government noted that this trend has been reversed following the gradual payment to foreign oil and gas companies over the past few months. These developments are reportedly prompting greater investments in energy efficiency and renewable energy projects, accelerating the green transition and providing opportunities for private sector investments.
“Despite the decline in these key sectors, positive growth was seen in other areas, partially offsetting the slowdown in economic activity. These included communications and information technology, tourism (reflected in restaurants and hotels), wholesale and retail trade, transport and storage, and social services such as education and health,” Daily News Egypt noted further.
The non-petroleum manufacturing sector, which contributes around 11.4% to GDP, contracted by 5.2% due to raw material shortages. However, this was addressed through economic reform policies implemented in March 2024, leading the sector to record positive growth of 4.7% in the fourth quarter of the year, marking the first increase since Q1 2022/23. This improvement was due to the growth of several industries, like ready-made garments (54.2%), textiles (23.8%), and computers and electronic products (14.9%).
“High-frequency data also signal tentative signs of improvement in economic activity. The Purchasing Managers’ Index (PMI) rose to 50.4 points in August 2024, marking an improvement for several months and surpassing the neutral threshold for the first time since November 2020, primarily driven by expansions in manufacturing activities. Additionally, the Business Barometer Index, issued by the Egyptian Centre for Economic Studies, experienced a slight improvement, reflecting a positive trend in overall business performance,” noted Daily News Egypt.
All the above key indicators align with forecasts from international institutions, suggesting that the North African country’s GDP will grow by 4% in the current fiscal year 2024/2025. This positive outlook is expected due to ongoing efforts to foster private sector-led growth while adopting measures to refine monetary and fiscal policies to better support economic recovery.