RIYADH: Egypt’s gross domestic product is expected to gradually increase to 5.1 percent by 2025 and 2026, driven by growing consumption, according to a report.
In a recent release by the Organization for Economic Co-operation and Development, Egypt’s economic growth is projected to face challenges amidst soaring inflation rates, necessitating urgent reform efforts to revitalize the private sector and attract investment.
According to the OECD’s inaugural Economic Survey of Egypt, the country’s GDP growth is set to ease to 3.2 percent in fiscal year 2023-24 before increasing gradually to 5.1 percent by fiscal year 2025-26.
“Growth is expected to be driven by growing consumption, provided inflation subsides and despite the gradual withdrawal of fiscal support,” the report stated.
It added that the investment will stay weak as long as financing conditions remain tight in the continuing fight against inflation. At the same time, export growth is expected to increase if geopolitical tensions in the region recede.
OECD Secretary-General Mathias Cormann underscored the urgency of controlling inflation to stimulate consumption and foster growth, saying: “Bringing inflation under control is now a key near-term priority to spur consumption and strengthen growth. Monetary policy needs to remain restrictive until inflation comes back to target.”
He added: “A comprehensive consolidation strategy is needed to improve investor confidence in public finances and ease financing conditions. Stepping up structural reform efforts, building on previous reforms, to reinvigorate private sector activity and investment by removing administrative barriers, ensuring a level-playing field between private and state-owned companies and stepping up the fight against corruption will help boost productivity and long-term growth.”
Despite initially weathering the storm of the COVID-19 pandemic and global food price hikes better than neighboring countries, Egypt has faced a setback, with domestic inflation soaring to record levels of 40.4 percent in September 2023, compared to 15.3 percent a year earlier.
The analysis said that this surge in inflation has adversely affected consumption, weakened the domestic currency, and dampened investment, consequently leading to a slowdown in growth.
Fiscal support measures, including targeted cash-transfer programs, have relieved the most vulnerable segments of society.
However, businesses have been grappling with rising interest rates and limited access to foreign currency, hampering economic activity. While inflation has started to decline gradually, standing at 31.2 percent in January 2024, challenges persist in restoring stability.
The report urged the government to address significant financing needs, indicating that despite targeting a 2.5 percent GDP primary budget surplus in the 2023-24 budget, the overall deficit will stand at -7.5 percent due to high-interest payments.
International market funding has been limited since early 2022 when increased volatility in global financial markets led to strong capital outflows. “Restoring investor confidence in public finances is essential to attract international capital and bring down debt service costs,” the study added.
Egypt’s vulnerability to climate change was also addressed in the report, with an urge to accelerate efforts toward mitigation and adaptation measures. Gradual reduction of untargeted energy subsidies was recommended to alleviate emissions and the budget deficit.
The report emphasized the role of private investment and international support in advancing climate-related financing and facilitating the green transition.
In conclusion, the OECD study underscored the need for concerted efforts to address Egypt’s economic challenges.
By implementing comprehensive reforms and fostering a conducive environment for private sector growth, Egypt can navigate the current slowdown and pave the way for sustained economic prosperity.