The International Monetary Fund cut its growth forecast for the Egyptian economy on the back of security concerns affecting vital tourism revenues.
The economy is expected to grow 3.5 percent in the fiscal year starting July 2014, the IMF said today in its October 2014 Middle East and Central Asia Economic Outlook report, down from 4.1 percent predicted last April.
Growth for the fiscal year ending 30 June 2014 was 2.2 percent,.
The IMF partially attributed its forecast cuts to security issues "keeping tourism a way from Egypt and hampering Egyptian gas exports" that offset the recovery sensed in the country's manufacturing activity and foreign direct investment (FDI) flow.
Structural issues, such as electricity supply disruptions, further weakening of private investment confidence in the Egyptian economy, are also to blame the international lender said.
The past two consecutive governments in Egypt have been trying to revive an economy battered by political instability and violence since a popular uprising forced president Hosni Mubarak to step down in 2011.
The IMF expects the budget deficit to reach 12.2 percent in 2013/14, down from the 14.1 percent high recorded in 2012/13. IMF expectations remain, however, higher than governmental forecast of nearly 11 percent deficit. The organisation expects an additional cut to the budget deficit to 11.5 percent in 2014/15.
The country’s socioeconomic indicators do not look promising with the inflation rate set to rise significantly to 10.9 percent in 2014 before jumping to 13.4 percent the coming year.
President Abdel-Fattah El-Sisi, who took office in June, undertook economic measures including new taxes and cuts to energy subsidies. Designed to reduce a ballooning budget deficit, the cuts also raised prices in the economy, taking a toll on the poorest segments of society.
While poverty rates have on average decreased in the MENA (Middle East and North Africa) region over the past decade, the IMF has noted that it has increased in Egypt from "16.7 percent in 2000 to 21.6 percent in 2009 and 26.3 percent in 2013."
High unemployment rates continue to be a big challenge for Egypt with unemployment among youth surpassing 30 percent.
The IMF however does not paint a dark picture of the Egyptian economy. The international institution points to what it sees as positive fiscal and economic reform including subsidies cuts and increased public investments in infrastructure and other areas that could enhance job creation.
Downwards revision of Egyptian economic growth comes amidst sliding growth forecasts for the region in general from 3.2 percent to 2.7 percent in 2014 and from 4.5 to 3.9 percent in 2015.