Economic studies
Egypt

Egypt

Population 90.2 million
GDP per capita 3,685 US$
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Synthesis

Major macro economic indicatorS

  2015 2016 2017(f) 2018(f)
GDP growth (%) 4.3 4.1 4.5 4.9
Inflation (yearly average, %) 10.2 23.9 22.1 14.0
Budget balance (% GDP)* -12.5 -10.8 -8.8 -7.1
Current account balance (% GDP) -6.0 -5.8 -4.6 -4.0
Public debt (% GDP) 96.6 98.4 88.7 87.9

 

* Fiscal years from June to June (f): forecast

STRENGTHS

  • Tourist potential
  • Manageable foreign debt
  • Political and financial support of the Gulf monarchies and Western countries
  • IMF Support Programme
  • Large gas deposits

WEAKNESSES

  • Poverty (40% of the population) and high unemployment
  • Recurrence of security issues in Sinai
  • Twin deficits
  • Banking system vulnerable to sovereign risk

 

RISK ASSESSMENT

Increase of growth in 2018

Egyptian growth strengthened during the first half of 2018 and should continue to be dynamic. While investment and exports remained the main drivers of activity, consumption showed signs of recovery favoured by a fall in inflation. The depreciation of the currency has increased the competitiveness of exports, the latter increasing by 7% in the 1st half of 2018 The support of the IMF will continue to fuel business confidence, but notwithstanding FDI should decline. The gas sector will continue to concentrate a large part of investments, both foreign and domestic. Technip and Minor are expected to invest USD 1.7 billion in the expansion project of a refinery of the Minor group and the Egyptian authorities intend to use part of the USD 1.5 billion loan contracted with the African Exim Bank to invest in oil projects. Growth in the hydrocarbon sector (+20% in the fourth quarter 2017) should also benefit the manufacturing sector, which is struggling to recover. The Purchasing Managers Index (PMI) improved over the last eight months of 2018, but did not exceed the economic expansion threshold.

 

Continuation of budgetary consolidation

Budgetary consolidation efforts under the IMF programme should result in a gradual short-term reduction of the public deficit. The latter fell slightly in 2017/2018 but is expected to decrease more significantly in 2018. The increase of VAT from 13 to 14% in July 2017 and the rise in customs taxes allowed a slight increase in budget revenues. Public spending remained controlled by the moderation of the wage bill with a de-indexation of bonuses for civil servants. Despite a drop in the state's participation in fuel financing (50% increase in the price of refined oil in June 2017), the elimination of subsidies planned for 2017 has been postponed to 2018, the government having made the choice to absorb the additional cost of the exchange rate impact on regulated and energy products. During the second half of the year, measures should be taken to reduce electricity and transport subsidies. Although the primary deficit declined in 2017, the depreciation of the Egyptian pound and the rise in domestic interest rates led to an increase in debt service, which remains the third largest expenditure item. Characterised by short maturities, debt remains mainly domestic. It could therefore be penalised by a further tightening of the central bank's (ECB's) monetary policy, while the increase in its external share following the IMF loan and the two bond issues in 2017 (USD7bn) increases its exposure to exchange rate risk and the rise in FED rates. Further budgetary consolidation in 2018/19 should lead to a primary surplus of 0.4% and to a further reduction in the path of public debt, which remains high.

The depreciation linked to the transition to a floating exchange rate in November 2016 enabled, after a period of adjustment, a reduction of external imbalance. Exports, canal fees, tourism receipts and expatriate remittances increased, leading to a fall in the current account deficit. Exports are expected to continue to increase in 2018 as a result of price competitiveness gains and increased gas extraction, the latter also reducing the energy import bill. The current account deficit will continue to be financed by the capital account surplus that benefits from rising FDI and portfolio investment.

 

2018 Election

Without surprise, Marshal Abdelfattah El Sissi was re-elected without any real opposition at the head of the Egyptian state, winning the presidential election of April 2018 by 97% of the votes. Indeed, the Marshal was the only candidate in the presidential campaign joined in recent weeks by a single opponent, Moussa Mostafa Moussa who displayed his support for the president. The lack of presidential issues was also reflected in the turnout, which remained relatively low at around 41%. The re-election of President Sissi should enable him to continue the policy begun during his previous mandates, both economically with the continuation of the economic and security investment policy. In June 2018, a new government was appointed with the main move being new figures in key positions in defence and the interior, heralding a consolidation of the security turnaround. The security situation remains fragile. The country continues to face a constant terrorist threat in the Sinai region, which is plagued by a small group insurgency linked to the Islamic state. But this strengthening of security policy against terrorist movements has also extended to all forms of political opposition, particularly that resulting from the revolution. The president's security regime is often criticised for not respecting human rights and in particular for the repression of certain figures of the Egyptian revolution of 2011. But it remains a pivotal centre of regional stability and the fight against terrorism, which enables it to play a leading role in the Middle East and maintain close relations with both Europe and the United States. Egypt has been the main mediator in the political rapprochement between Hamas and the Palestinian Authority. The country also sided with Saudi Arabia, one of its allies in the Qatar crisis since it was part of the Arab countries other than those of the Gulf Cooperation Council having boycotted the Emirate.

 

Last update: July 2018

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