As international financial institutions’ attention currently focuses on the impact of global and regional tensions on the global economy, particularly the economies at the centre of the events, the WB touched upon this issue during the annual meetings it organized with the International Monetary Fund (IMF) in October.

Ahram Online: What are the key drivers behind the World Bank’s recent forecasts for the global economy, particularly for the MENA region?

Roberta Gatti: According to the WB’s latest global forecast (Global Economic Prospects), the global economy will grow by 2.6 percent this year.

While this is the same growth rate as in 2023, it reflects a more subdued momentum compared to the last decade, where growth averaged about half a percentage point higher between 2011 and 2019. This slowdown reflects sluggish investment growth due to restrictive monetary policies and moderate consumption growth.

In emerging markets and developing economies (EMDEs), growth is also moderating to four percent in 2024 (it was 4.2 percent in 2023), reflecting the slowdown in China and subdued growth among commodity exporters because of weak global demand.

Weak global demand has also affected economies in the MENA region, particularly oil exporters. MENA's real GDP growth is expected to average 2.2 percent in 2024, a moderate increase from the 1.8 percent observed in 2023.

This slight uptick, driven by the Gulf Cooperation Council (GCC) countries, is anticipated to grow at 1.9 percent in 2024, up from 0.5 percent in 2023. This is largely driven by the expansion of the non-oil sector.

Growth in MENA countries outside the GCC is expected to slow in 2024 due to global conditions, including pre-existing vulnerabilities, increased uncertainty, and direct exposure to spillovers from regional conflicts.

The forecast for 2024 averages 2.1 percent for developing oil importers, down from 3.2 percent in 2023; for developing oil exporters, the decline is from 3.2 percent in 2023 to 2.7 percent in 2024.

AO: What about the WB’s outlook for global inflation, MENA inflation, and regional debt?

RG: According to the World Bank's 2024 forecast (Global Economic Prospects), global inflation is projected to moderate to 3.5 percent in 2024 and further decline to 2.9 percent in 2025 — a scenario that aligns broadly with the central bank targets.

While these numbers are smaller than the peak inflation in 2022, the pace of inflation decrease has been slower than previously expected. Therefore, both advanced economies and EMDEs are likely to adopt a cautious approach to easing their policy rates.

Inflation in MENA is also easing along with the global trend. It decreased to 3.6 percent in 2023 from five percent in 2022 and is projected to decline further to 2.2 percent in 2024.

However, there are important disparities within MENA. In GCC countries, where pegged exchange rates are maintained, inflationary pressures have been contained. In contrast, inflation remains elevated in other developing oil exporters, particularly Iran (31.9 percent in 2024), and some developing oil importers.

In Egypt, inflation declined to 25.6 percent in August 2024 from an average of 33.6 percent in the fiscal year 2024, following the central bank’s decision in March to allow the currency to depreciate and to increase key policy rates.

In Lebanon, inflation dropped to 35 percent in August 2024 from 229.8 percent in August 2023, primarily due to the high base effect after the central bank devalued the official exchange rate in February 2023 for the first time since 1997.

Nevertheless, inflation in the West Bank and Gaza soared to 53.2 percent in August 2024 from 4.9 percent in August 2023. Gaza experienced severe constraints on the movement of goods, leading to a dramatic spike of nearly 250 percent in August 2024. The West Bank saw relatively stable inflation due to demand-driven shocks from significant income losses in both the public and private sectors.

MENA’s public debt has historically been high. In 2024, the debt-to-GDP ratio in MENA oil importers is expected to average 88.6 percent of GDP, almost three times higher than that of MENA oil exporters (at 33 percent of GDP).

Furthermore, 11 out of 19 economies in the MENA region are projected to have higher debt-to-GDP ratios in 2024 compared to 2023.

Libya, the West Bank and Gaza, and Iraq are expected to see the most significant increases due to the expansionary fiscal stance in Libya and Iraq and a deepening fiscal crisis for the Palestinian Authority amid the ongoing conflict.

AO: What is the WB’s outlook for Egypt’s debt and budget deficit?

RG: Egypt's government debt-to-GDP ratio is projected to reach 94.5 percent and 91.6 percent at the end of FY2024 (starting in July 2023 and ending in June 2024) and FY2024/2025 (starting in July 2024 and ending in June 2025), respectively.

External financing requirements remain substantial, but the financing gap is expected to be closed in the short term. Principal external debt maturing during July-December 2024 is estimated at around $20 billion, and International Oil Companies (OIC) arrears are estimated at $5 billion.

Like other developing oil importers in MENA, Egypt is projected to post a fiscal deficit in 2024. Yet, Egypt’s fiscal deficit is anticipated to decline to 3.6 percent in FY2024 from six percent in FY2023.

This improvement is primarily due to the one-off recording of the EGP equivalent of half of the fresh inflows from the Ras El-Hekma deal, amounting to $12 billion into fiscal revenues.

This exceptional, one-time revenue boost has helped the constrained fiscal space caused by high-interest payments and low domestic tax revenue, which reflect ongoing challenges in consumption and economic activity. These challenges especially affect value-added tax revenues, but broadening the tax base and increasing revenues by reducing exemptions remains a challenge.

Debt analysis conducted in the April 2024 MENA Economic Update report indicated that fiscal consolidation is essential to control public debt in Egypt. Improving transparency, including bringing above-the-line public spending that has been traditionally off-budget, can chart a path to fiscal policy management that is aligned with best practices.

AO: What are the key drivers behind the WB’s projections for the country’s real GDP growth?

RG: Egypt's growth is forecasted to decline from 3.8 percent in FY2023 to 2.5 percent in FY2024. This decline comes in the wake of the shockwaves from the Middle East conflict, which have led to trade disruptions and reduced shipping through the Suez Canal. It is also linked to the scarring effects of the foreign exchange crisis from March 2022 to 2024, which have resulted in import restrictions and overall weak manufacturing activity.

Egypt’s growth is expected to recover gradually, reaching 3.5 percent in FY2025 and 4.2 percent in FY2026. This recovery will be driven by favourable base effects and increased investment, particularly from the Ras El-Hekma deal.

Additionally, improved private consumption, supported by gradually decreasing inflation and a projected increase in remittances, will contribute to the recovery.

However, the decline in international oil prices may moderate the impact of remittances, given that a significant portion of Egypt’s diaspora resides in the GCC countries.

AO: What is Egypt's rank in terms of growth among North African countries?

RG: The report shows that while Egypt’s 2024 growth rate (2.5 percent) stands higher than the regional average (2.2 percent), there is significant untapped potential for faster and better growth in the region, including in Egypt.

To support private sector-led growth, it is important to continue current efforts to stabilize the macroeconomic environment, address the role of the state, and enhance the business environment. 

Moreover, the current Economic Update report found that talent misallocation, both in and out of the labour force (especially regarding low female labour force participation rate) and between the public and private sectors, has harmed living standards in the region.

First, we found that closing the gender gap in employment could increase Egypt's GDP per capita by 47 percent.

Second, by reallocating talent from the public to the private sector, Egypt could boost productivity by eight percent.

Finally, MENA countries can leverage their location to access frontier knowledge and technology through increased international trade, to promote further productivity gains.

Tapping into global technology through more international trade and facilitating the flow of ideas with more data openness, an area where Egypt can make significant improvements very rapidly, will also accelerate growth.