2021 Yearender: Egypt’s macroeconomic performance and the challenges ahead

Doaa A.Moneim , Friday 31 Dec 2021

The year 2021 was a challenging one for the Egyptian economy, as it saw the intersection of two fiscal years (FY2020/21 and FY2021/22) that were heavily impacted by the economic repercussions of the COVID-19 pandemic.

Central Bank of Egypt

Despite the pandemic’s impacts, however, the Egyptian economy has managed to maintain its positive GDP growth in both FY2019/20 and FY2020/21 (3.6 percent and 3.3 percent respectively), although this growth rate has lingered amid the ongoing challenges on the global and domestic levels.

Meanwhile, the government has asserted its commitment to reaching pre-pandemic levels on all macroeconomic indices as of the current FY2021/22, which ends in July 2022.

Hereunder are the government’s main targets through the end of the current FY2021/22 over all macroeconomic and real sector indices to achieve its key goal of restoring pre-pandemic levels.

GDP growth

The government targets a 5.4 percent GDP growth in FY2021/22, following a slowdown in FY2020/2021 that is estimated at 2.8 percent, in light of the incremental recovery of Egypt’s economic recovery from the COVID-19 pandemic.

The value of Egypt's current FY2021/22, the first half of which concludes by the end of December, is estimated at EGP 2.6 trillion, the biggest in Egypt’s history, increasing from a value of EGP 2.2 trillion for the FY2020/21.

Egypt’s GDP is projected to grow by 6 to 7 percent in the second quarter of FY2021/22 (October-December), which is lower than the first quarter growth of 9.8 percent, according to Egypt’s Minister of Planning and Economic Development Hala El-Said.

Egypt is targeting an economic growth rate of 5.5 to 5.7 percent during FY2021/2022.

During the first quarter (Q1) of FY2021/22, Egypt’s GDP grew by 9.8 percent, which is the highest quarterly growth rate over the past two decades and demonstrates improvement in the country’s economy and a trend towards recovery from the pandemic, according to the Ministry of Planning and Economic Development.

Moreover, Egypt’s GDP is expected to achieve a 6 to 7 percent growth rate by the end of Q2 of FY2021/22, which concludes by the end of December, according to the planning ministry.

The government has been taking several actions to achieve the GDP growth target in FY2021/22, including increasing the public investment allocations by 46 percent, compared to FY2020/21, to reach EGP 933 billion.

Moreover, the government plans to decrease the budget deficit to 6.7 percent and attain an initial surplus of 1.5 percent.

Additionally, the government has allocated EGP 4.2 billion in order to support the export sector in light of the presidential directives to increase the value of Egyptian exports to EGP 100 billion over the coming three years.


Dealing with inflation is one of the government’s key objectives in FY2021/22, especially with the elevated global inflation rates and the continuous supply chain disruptions.

It is worth noting that the Central Bank of Egypt (CBE) has reset its target for inflation through the end of 2022 to 7 percent (± 2 percent) instead of 9 percent.

The CBE has said that the action aims at supporting Egypt’s economy stability.

Egypt’s headline annual inflation rate jumped in November to 6.3 percent, up from 2.7 percent in the same month in 2020, according to the CAPMAS.

However, these figures are still below the CBE’s target.

Coping with the likely rise in inflation, the government has established four strategic warehouses and logistics centres in Cairo with an aim to have these facilities cover all the country’s governorates in collaboration with the private sector and Egypt’s Sovereign Wealth Fund.

In addition, the government is adopting quick-response solutions by providing basic goods produced by the state’s facilities to the local market at cost.

The government is also expanding in partnerships and collaborations with all international financial institutions (IFIs) in order to secure the required finances for supporting all economic sectors as well as executing national projects.

Furthermore, the CBE is continuing to ease the monetary policy over 2021 by maintaining the key interest rates at the December 2020 levels to deal with the rising inflation.

Elevated debt

According to the recent update on the global debt database, released by the International Monetary Fund (IMF), Egypt’s external debt is expected to jump to 91.4 percent of the country’s GDP by the end of 2021 amid the pandemic and its associated challenges.

By the end of FY2019/20, the government managed to reduce Egypt’s overall debt to 88 percent, down from 108 percent in FY2016/17.

Dealing with the elevated debt, the government has adopted Medium-Term Debt Management Strategy (MTDS) that aims at decreasing the public debt-to-GDP ratio to 84 percent in the coming FY 2022/23, which starts in July 2022, and 79 percent in FY 2023/24.

The strategy also targets reducing debt services, prolonging their period, and improving governmental security in markets to expand the investor base, which will in turn provide the required liquidity to support the budget.

According to this strategy, the external debt trajectory will be set in accordance with the expected cash inflows to the country to a maximum of 37 percent of GDP, which will be put on a downturn path per year.

The strategy also aims to reduce the external debt-to-GDP ratio to below 30 percent over the medium term, with an objective of decreasing the public debt-to-GDP ratio to about 70 percent over the coming four years and putting a cap on loans obtained through external bodies over the same period.

Moreover, the strategy includes settling a portion of debts by exchanging them with unique state-owned assets. The aim is to reduce public debt by EGP 100 billion annually for the coming four years.

In this regard, the IMF said that the COVID-19 crisis has disrupted the declining trend of Egypt’s debt-to-GDP ratio since 2016/17, but public debt is projected to return to a downward trajectory in FY2021/22 as growth rebounds.

A sustained reduction in public debt will require renewed reform momentum to support continued strong growth; a comprehensive structural reform agenda is essential to help foster private sector development and unleash Egypt’s considerable growth potential, according to the IMF.

State revenues

In step with the MTDS, the government drafted a medium-term strategy (MTRS) –in collaboration with the IMF – to boost the budget’s revenues.

Through this strategy, the government eyes mobilising the country’s revenues to increase them by 2 percent of GDP over four years, supporting Egypt’s targeted budget surpluses and creating room for priority spending on health, education and social protection.

Beyond the pandemic, the government aims to widen the tax base by raising the ratio of non-sovereign tax to GDP by 2 percent over four years and by introducing a new simplified VAT system.

In this respect, Minister of Finance Mohamed Maait stressed that increasing tax revenues will not be achieved by imposing new taxes or raising the current tax levels, but through sound tax management, efficiency, and automation.

The minister also said that Egypt has lost over 90 percent of its VAT revenues because of the pandemic in 2020 and 2021, but it managed to attain a 14 percent increase in total tax revenues in FY2020/21.

Meanwhile, the government has said that it will expand in offering debt instruments for investors going forward, in addition to preparing for the second issuance of its sovereign green bonds.

It is worth mentioning that Egypt is set to be relisted in JP Morgan’s Emerging Markets Bond Index (EMBI) by the end of January 2022, with an estimated weight of 1.8 percent through 14 government bonds in a total value of $24 billion.

Egypt will also join the JP Morgan Environment and Governance Index by the end of January 2022 with 1.1 percent of the index, based on Egypt’s issuance of its green bonds in October 2020.

The action will allow large investment funds and foreign investors to invest in Egypt’s debt instruments in local currency, with about $1 billion in new investments expected to be injected in the Egyptian governmental equity market, according to the finance minister.

Budget deficit

The government targets narrowing the budget deficit to 6.7 percent of GDP, down from 7.8 percent in FY2020/21.

So, the government is acting to increase budget revenues by 22 percent to EGP 1.3 trillion in FY2021/22, as well as increasing revenues from other sources by 33 percent to reach EGP 380 billion.

The latest Fiscal Monitor Report, issued in October, predicts Egypt’s budget deficit will decline to 6.3 percent of GDP by the end of FY2021/22, compared to 7.3 percent in FY2020/21.

However, this figure is up 0.5 percent from the IMF’s April forecast for the same fiscal year.

Challenges ahead

Egypt’s high public debt and large gross financing needs – the amount of money the government needs to issue every year, both to renew loans that are maturing and to finance new debt – leave it vulnerable to external shocks, such as higher costs of borrowing at the global level as developed economies gradually withdraw their economic stimulus, according to the IMF.

Over and above this, it is essential for Egypt to focus on structural reforms to encourage private-sector led growth, such as policies to increase revenues for financing critical public services including health, education and social safety nets, boost governance and transparency, and further develop financial markets.

Additionally, reducing the role of the state in the economy, ensuring a level-playing field for all companies, improving the business climate, and increasing Egypt’s integration into global trade by reducing trade barriers and ensuring predictability of customs procedures are critical to unleash Egypt’s enormous growth potential, reduce poverty and improve inclusiveness.

Fitch Ratings said in a recent report, published in December, that a new IMF programme for Egypt is likely to deal with the fiscal and budget issues because of the pandemic.

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