CAIRO, 5 March 2007 — The Egyptian economy is expected to continue its robust growth this year, but the country’s public debt burden remains a key threat to fiscal stability. Investment bank EFG-Hermes said it expected the Egyptian economy to grow 6.2 percent in the fiscal year ending in June 2007 and 7.2 percent by 2008/09, while inflation would average 10 percent in 2006/2007.
The government has said gross domestic product (GDP) rose 6.8 percent in the first half of the 2006/07 year, which began in July 2006.
Tim Ash, emerging markets economist at Bear Stearns, told Reuters from London, that he expected the Egyptian economy to grow at about 7 percent in the current fiscal year.
Foreign direct investment (FDI) has risen significantly since the current market-oriented government took office in 2004, reaching $6.1 billion in 2005/2006. The government expects FDI to rise to between $7.5 and 8 billion this year.
Some economists say the majority of foreign investment comes from the sale of state assets and new projects in sectors that do not create many jobs, such as oil, real estate and telecommunications. The government says the majority of FDI comes in the form of new projects.
EFG-Hermes said the high unemployment rate also posed fiscal and social risks that could undermine the pace of economic reforms. The government says unemployment is about 9.5 percent, but many believe the figure to be much higher.
The bank said it expected inflation to average around 10 percent in 2007 “as the government continues the restructuring of subsidies and as the economy continues to grow fast”.
The consumer price index rose 12.4 percent in the year to January, unchanged from a month earlier. The central bank said in February there were signs prices are rising more slowly, therefore leaving its key deposit and lending rates unchanged in at 8.75 percent and 10.75 percent. With risks of fiscal imbalances, having negative real interest rates remain a puzzle, investment bank Morgan Stanley said in a recent report.
The government has said the rise in inflation was mainly due to a 30 percent hike in fuel prices in July and the outbreak of bird flu in Egypt. Food items comprise around 40 percent of the consumer price index.