The World Bank, in its latest prediction for the Egyptian economy, has reduced the country’s growth forecast for the current fiscal year to 2%, the lowest level in 11 years, as the northeast African nation continues to battle to emerge from the worst economic crisis of its history.
Egypt’s growth has been lowered by the international lender three times in 2024 alone. In its most recent Middle East and North Africa (MENA) Economic Update, the World Bank attributed the recent downturn to the nation’s “sluggish industrial sector performance,” a high rate of inflation, and the effects of regional conflict.
“Out of all the nations, Egypt may suffer the greatest fiscal consequences from the combined effects of the Suez Canal crisis and the Middle East conflict due to lower fiscal revenues and tourism receipts,” the report stated.
The income from Egypt’s Suez Canal, one of the country’s major income sources, has decreased by nearly half this year, due to repeated attacks on international shipping passing through the Red Sea, which the Houthis in Yemen launched in protest of the ongoing military conflict in Gaza.
The World Bank issued a warning against more severe economic consequences in the report, saying that “if fighting were to worsen or continue for a protracted period of time.”
The International Monetary Fund (IMF) increased Egypt’s loan programme to USD 8 billion in March 2024, just after the nation formally adopted a flexible exchange rate between the local pound and the US dollar.
The depreciating Egyptian pound in relation to the US dollar drove up the cost of necessities in a nation largely reliant on imports rather than domestic manufacturing. Approximately one-third of Egypt’s population, which is close to 109 million, lives in poverty.
The official value of the US dollar has risen to surpass 48 EGP, from nearly 30.90 EGP prior to the most recent devaluation, after months of struggling to hold its value ahead of the US currency.
Egypt has also been actively seeking the sale of state assets to affluent Gulf countries in order to meet its demand for dollars. One such deal is the recently signed Ras El-Hekma agreement with the United Arab Emirates.
Though President Abdel Fattah al-Sisi’s government invested in high-end projects like the New Administrative Capital, which cost Egypt approximately USD 60 billion, experts contend that serious economic mismanagement contributed to Egypt’s current situation.
Minister Gives Different View
As per Egypt’s Finance Minister Mohamed Maait, the country’s “new economic path,” focused on structural reforms like empowering the private sector to lead growth and attract investment, has begun to yield positive results.
Maait highlighted that despite the harsh impacts of the ongoing economic crisis (coupled with geopolitical fallouts), Egypt has seen its financial indicators improving, like the country surpassing its budget estimates and targets over the past nine months of the fiscal year 2023-2024.
While interacting with the Egyptian daily Al-Ahram, the minister further noted that the above success reflected the international recognition of the North African country’s economy for achieving better-than-expected performance metrics.
Maait also pointed out the significant improvements in non-tax revenues, which saw an increase of 122.9%, and tax revenues which surpassed 1 trillion Egyptian pounds (USD 20.6 billion), marking a growth of 41.2% annually.
He also noted that these gains were achieved without imposing new burdens on citizens and investors, thanks to expanded mechanisation intended to broaden the tax base and integrate the informal economy into the formal sector.
Maait also informed the Egyptian daily that the country’s continued effort to boost its economy is evident in the Ministry of Finance’s ongoing dialogues with over 2,000 investment institutions a year.
The ministry’s Investor Relations Unit plays a crucial role in these engagements, maintaining open dialogue and issuing monthly performance reports, which give foreign investors precise, up-to-date economic data, including details about debt levels, deficits, and primary surpluses. These reports also offer a simplified guide on the various incentives, including tax advantages available to investors, aiming to alleviate any concerns and accurately address potential economic risks.
Meanwhile, the latest data released by Egypt’s Central Agency for Public Mobilisation and Statistics showed a slowdown in the country’s urban consumer price inflation rate to 33.1% in March 2024 from 36% in February. Additionally, month-on-month prices rose by 10% in the third month of 2024, down from an 11.4% increase in the previous period.
This development follows the central bank’s announcement in early March of a 600 basis points hike in interest rates at an unscheduled meeting, along with a shift to an inflation-targeting regime, allowing the exchange rate to be determined by market forces.