Despite the coronavirus and its global repercussions, Egypt has recently ranked fourth on the Economist magazine’s global normalcy index and the third on Forbes Middle East’s list for the biggest economies in the Arab region.
The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) is anticipated to review key interest rates during its upcoming meeting scheduled for 5 August, which will be the fifth time the committee convenes in 2021.
The MPC decision will be made in light of the recent updates on the global and domestic macroeconomic indices, mainly the global and local inflation rates and the performance of the local economy.
Hereunder are the 10 key facts and projections extracted from the recent International Monetary Fund (IMF)’s staff report on Egypt’s economic performance during the current FY2021/22, which began on 1 July, and the coming FY2022/23 in light of the fund’s final review of Egypt’s stand-by arrangement (SBA) programme that concluded in June.
The IMF is scheduled to release its updated report on the global economic outlook on Tuesday, which will shed light on the global economy’s performance amid the pandemic and the recovery efforts.
1- Real GDP growth: The IMF expects Egypt’s GDP to grow by 5.2 percent in FY2021/22 – up from 2.8 percent in FY2020/21 – before rebounding slightly in FY2022/23 to reach 5.6 percent, which is the same percentage recorded in FY2019/20 prior to the outbreak of the pandemic.
Egypt targets a 5.4 percent real GDP growth in the current fiscal year in light of the incremental recovery of its economy from the COVID-19 pandemic and its impact.
2- Inflation: The IMF projects inflation to average 6.6 percent in FY2021/22 –increasing from 4.6 percent in FY2020/21– and to go up to 6.9 percent in FY2022/23, which exceeds the FY2019/20 level when the inflation rate posted 5.7 percent.
Egypt eyes inflation to settle in the range the CBE sets through the fourth quarter of 2022 at seven percent, ±2 percentage points.
3- Budget revenues: The IMF expects Egypt’s budget revenues, including grants, to increase in FY2021/22 and FY2022/23 to record 18.6 percent and 18.7 percent of GDP, respectively, up from 17.9 percent in FY2019/20.
The government is working with the IMF on a medium-term revenue strategy (MTRS) that aims to mobilise the country’s revenues, through which revenues would increase by two percent of GDP over four years.
4- Public debt: The IMF projects the public debt to GDP ratio to decline incremently in FY2021/22 and FY2022/23 to reach 89.8 percent and 87 percent, respectively, down from 92 percent in FY2019/2020.
This comes in line with Egypt’s plan to decrease public debt to GDP ratio to 87 percent in FY2020/21, 84 percent in FY2022/23, to reach 79 percent in FY2023/24.
However, the fund pointed out that the country’s public debt trajectory is vulnerable to macroeconomic shocks and risks from contingent liabilities amid the COVID-19 crisis.
5- Public spending: The IMF expects public spending to take a downward trend to post 25.6 percent and 24.9 percent of GDP in FY2021/22 and FY2022/23, respectively, down from 26.1 percent in FY2020/21.
The government targets public spending to not exceed EGP 1.25 trillion, which is expected to result in an initial surplus estimated at a 1.5 percent of GDP that will contribute to decreasing the debt to GDP ratio.
Egypt plans to increase expenditure by 0.9 percent in FY2021/22 to post EGP 1.8 trillion, up from EGP 1.7 trillion in FY2020/21.
Expenditure includes commodities and services purchasing, wages and compensations for employees, investments, loan interests, subsidies, grants, and social benefits.
6- Foreign direct investment (FDI): The IMF projects FDI inflows to Egypt to jump to two percent and 2.5 percent of GDP in FY2021/22 and FY2022/23, respectively, up from 1.4 percent in FY2020/21.
7- Budget deficit: The IMF said maintaining primary surpluses of about two percent of GDP would anchor a reduction in Egypt’s public debt from 92 percent of GDP projected for FY2020/21 to around 75 percent by FY2025/26, which is expected to strengthen market confidence and create fiscal space —including through lower interest payments — for much-needed social and investment spending.
The country is targeting a budget deficit of 6.6 percent in FY2021/22.
8- Egypt’s capacity to repay its financial obligations: The IMF said it is adequate, but risks remain, as uncertainty about global financial conditions and the concentration of repayment of obligations to the fund in FY2023/24 and FY2024/25 remain the key risks.
Improvements in the fiscal and external positions are expected to ensure Egypt's continued market access and adequate capacity to repay, according to the IMF.
9- Bonds market: The IMF said that Egypt was among the 13 countries included in the new FTSE Russell Frontier Emerging Markets Government Bond Index launched on 8 June.
The index is the first to track frontier markets’ local currency bonds, which is a sign of growing investor appetite for this asset class. Eighty Egyptian bonds are represented in the index, accounting for the maximum 10 percent weight allowed for each country.
Other countries included in the new index are Bangladesh, Costa Rica, Dominican Republic, Ghana, Kenya, Nigeria, Pakistan, Serbia, Sri Lanka, Ukraine, and Vietnam.
10- Monetary policy: The IMF stressed that the CBE data-driven approach to monetary policy has helped anchor inflation expectations amid the ongoing crisis, adding that Egypt’s inflation remains below the CBE’s target range, providing scope for the monetary policy to further support the recovery as warranted by inflation and economic developments.
The fund added that continued efforts to strengthen the monetary framework will also support monetary transmission. Two-sided exchange rate flexibility is essential to absorb external shocks and maintain competitiveness, the IMF stated.