Egypt is targeting an economic growth rate of 5-6 percent by the end of the 2017/18 fiscal year, and north of six percent in the following years, Prime Minister Sherif Ismail told Egypt’s parliament Sunday while unveiling an ambitious three-year plan.
After years of political turmoil and instability, the most populous Arab nation is in great need of private investment, particularly foreign currency inflows, to ease the burden on a strained state budget and to address a hard currency crunch that has slowed economic activity.
In January, the World Bank revised its forecast for Egypt's economic growth to 3.8 percent the current fiscal year, from 4.5 percent predicted in June 2015, citing the shortage of foreign currency, but the bank expected growth to pick up in later years, driven by investment.
Ismail said the government is faced with “difficult decisions” in implementing a plan that he qualified as “ambitious” numerous times in his speech to Egypt’s House of Representatives.
Among the tough steps is reforming Egypt’s state subsidies programme, which added to wages and servicing public debt consumes 80 percent of the state budget, said the prime minister.
The prime minister also reiterated his government’s keenness to facilitate investment procedures, such as obtaining licenses and permits, and land allocation.
The government plans to cut the budget deficit to 9-10 percent of GDP by the end of FY17/18, compared to the current 11.5 percent, and to 8-9 percent by the end of fiscal year 2019/2020, said Ismail.
The prime minister also reiterated the government’s intention to introduce a value added tax (VAT), which Central Bank of Egypt Governor Tarek Amer said was necessary for Egypt to receive the first $1 billion tranche of a $3 billion World Bank loan it signed last December.
Public debt will be reduced to 92-94 percent of GDP by end FY17/18, from 93 percent currently, according to Ismail, and to 85-90 percent of GDP by end FY19/20, said the prime minister.
Egypt expects $15 to $20 billion in foreign investment in government debt notes this year, after a dramatic hike in interest rates pushed yields on treasury bills and bonds significantly higher this month, Amer said in a televised interview Saturday evening.
The rate hike aims to address inflationary pressures after the sharp devaluation of the Egyptian pound by 14.5 percent against the US dollar 14 March, which was hailed by global credit agencies Moody’s and Fitch as “credit positive,” though likely to fuel higher inflation.
The government's programme also aims to address the country's trade deficit by boosting the competitiveness of Egyptian exports and controlling imports, said Ismail, to reduce the trade deficit by 3-5 percent by the end of FY2017/18.
Egypt has in recent months prioritised essential goods and production inputs in making hard currency available to importers, raising customs on hundreds of "luxury" imports and introducing new registration requirements for suppliers of dozens of imported consumer goods with the aim of slashing the imports bill by a quarter this year.
The government also plans to bring the unemployment rate, which stands at 12.7 percent, down to 10-11 percent by the end of FY17/18, and less than nine percent by the end of FY19/20.