LONDON: Egypt’s government deserves credit for rebooting the economy and introducing difficult economic reforms — but there is still work to be done, analysts told Arab News.
In the wake of the IMF agreeing to release another $2 billion to Cairo following a mutually-agreed loan program in 2016, Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes in Cairo, said: “Egypt’s reform story is on track. The economy is recovering, and the external and fiscal deficits are narrowing despite rising oil prices and global tightening monetary conditions.”
Asked about the next economic challenge for Egypt, Abu Basha said it would be about stimulating the real economy through more structural reforms, and boosting private sector investment — both local and foreign — while maintaining macro-stability.
“This is important to reduce unemployment, enhance productivity and protect gains realized over the past few years,” he said.
The introduction of a flexible exchange rate — part of the IMF agreement with Cairo — as well as subsidy cuts led to a surge in inflation that hit 30 percent at worst, but was down to 16 percent in September.
A weaker currency has boosted exports and attracted overseas capital, not least from China, which signed off on $18 billion of deals in infrastructure and energy during a September visit to Beijing by Egyptian President Abdel Fattah El-Sisi.
David Butter, Middle East analyst at UK think-tank Chatham House, told Arab News that increased natural gas production had been “very positive for growth” as development of Egypt’s Zohar gas field with foreign oil companies had boosted the balance of payments. “They were spending something like $2 billion importing gas. Now they don’t have to do that, although they are having to pay something to the foreign operators (of Zohar), but there is definitely a net benefit,” he said.
James Tuvey, of Capital Economics, said the government had “stabilized the situation economically.” The reform program had worked well as the IMF had agreed to Cairo’s request to expand social welfare programs to protect the most vulnerable from subsidy cuts and other measures. “Additionally, there is a minimal spending requirement on education and health care, as well as on research and development,” said Tuvey.
He said it was now important to push through with planned privatizations that would attract foreign as well as domestic interest.
Butter said that there was still the issue of the fiscal deficit at about 8 percent of GDP “which needed to be brought down.”
That could be done partly by sustaining economic growth. “At the moment GDP is at about 5.3 percent, and that’s helpful. Increased natural gas production has certainty been positive. But private consumption, a big driver of growth, is still rather weak. Real wage levels have lagged because of inflation,” said Butter.