The World Bank forecasts Egypt’s growth to reach 5.8% in 2020, driven by the country’s economic reform program, a report by the group said on Wednesday.
Egypt's economic reform program, which the IMF supported in 2014, includes the liberalization of the Egyptian currency, rationalized energy subsidies, and increased social protection for the poor.
The program helped Egypt secure a $12 billion loan.
The World Bank predicted growth would reach 5.6 percent in fiscal year 2019, supported by private consumption, a continued recovery in tourism, and the new operations of recently discovered gas fields.
It also predicted public investment to grow along with the expected private investment if business environment reforms are effectively implemented.
Egypt's growth rate for the 2017/2018 fiscal year hit its highest level in ten years as it recorded 5.3 percent growth, compared to 4.2 percent in the year before, according to statements by the country’s planning minister last July.
According to the World Bank's outlook, fiscal consolidation will be aided by an expected increase in tax revenues and further cuts in energy subsidies.
It added that large interest payments are expected to decline over the medium-term through the country’s debt repayment and the prolonged maturity structure.
Despite the positive outlook in the report, the bank said it expects a continuation of price hikes on goods and services, affecting vulnerable households in the short term.
Such hikes make it important for Egypt to implement adequate mitigation measures, but the group projects that poverty will slip modestly to 15.3 percent in 2019 from an estimated 15.6 percent in 2017.
The group also highlighted risks the economy faces, citing the challenge of starting private sector led growth, which requires the alleviation of longstanding constraints, including fostering a level-playing field and facilitating access to key inputs such as land and a skilled labour force.
It said that the progress in domestic and foreign investments relies on the state-led activities in its economy.
The group estimated public investments to be almost twice the size of the government investments’ budget sector.
“A well-functioning market economy requires a clear demarcation of the role of the state, and its redirection towards enabling and regulating functions,” it said, while adding that this is best achieved through establishing the rule of law, reinforcing competition policies, and improving basic services.
According to the group, risks to Egypt’s FY2019 budget emerge from a potential increase in global oil prices, or a spill over of the emerging markets exchange rate crises.
High levels of public debt pose sustainability risks in the medium to long term if fiscal consolidation is discontinued, the group continued.
Other risks in terms of sustainability flow from double digit youth unemployment figures, low labour force participation, and large population growth, which has amounted to over 2.3% annually since 2011.
Egypt's unemployment rate dropped to 9.9 percent in the second quarter of 2018, compared to 10.6 percent in the first quarter and 12 percent for the same period in the previous year.
The number of Egyptians worldwide, according to the government's statistics authority, now stands at 101 million, including 8 million living abroad, with officials maintaining that the steep rise in population will hinder the country's development plans.