World Bank slightly downgrades forecast for Egypt’s real GDP growth in FY2022/2023

Doaa A.Moneim , Thursday 22 Dec 2022

The World Bank has revised down predictions for Egypt’s real GDP growth in FY2022/2023 to 4.5 percent, down from 4.8 percent it expected in October and below the 6.6 percent the country attained in FY2021/2022.

World Bank


The revised prediction comes on the back of the repercussions of the Russian-Ukrainian conflict and the persisting COVID-19-related implications, according to the bank’s Egypt Economic Monitor report.

However, the report projected Egypt’s real GDP growth to start to inch up thereafter, but expected the poverty rate (last recorded at 29.7 percent during October 2019-March 2020) to increase due to the impact of inflation on real incomes.

In this respect, the report said that economic activity and real incomes are expected to be adversely impacted by the overlapping global crises over the near term, adding that the manufacturing sector still struggling with the impacts of the global challenges.

On inflation, the report expects the country’s inflation to exceed the target set by the Central Bank of Egypt (CBE) at 7 percent (±2 percent) and to remain in double digits through the current FY2022/2023 due to the impact of the depreciation, imported inflation, supply bottlenecks, along with the potential continuation of adjustments to fuel prices.

On the World Bank’s estimates for Egypt’s debt, the report said that Egypt’s external debt rose to $155.7 billion (37.2 percent of FY2021/22 GDP) at the end of June 2022, up from $137.9 billion (32.3 percent of GDP) posted at the end of June 2021.

The report also said that the country’s short-term external debt increased to 17.1 percent of total external debt at end-June 2022, up from 9.9 percent at end-June 2021, attributing the rise to the newly received short-term GCC deposits that amount to $13 billion ($5 billion from Saudi Arabia, $5 billion from the UAE and $3 billion from Qatar) by end-March 2022.

Moreover, the report said Egypt’s total external debt figures include long-term deposits in the CBE from Saudi Arabia, Kuwait and the UAE, which were $15 billion as of the end of June 2022.

In addition, debt service payments also increased during FY2021/2022, reaching $26.3 billion, up from $15.9 billion during FY2020/2021, according to the report.

“External debt servicing remains rather large, as the obligations that are confirmed to be paid in FY20222/2023 amount to $42.2 billion,” the report explained.

Commenting on Egypt’s new International Monetary Fund (IMF) loan programme, the report noted that the financing Egypt will secure under the IMF’s Extended Fund Facility (EFF), and the accompanying foreign financing from multilaterals, already-pledged foreign investments and GCC deposits could cover the country’s external debt obligations.

Over the medium term, the report said that sustained fiscal consolidation is crucial to help reduce Egypt’s external financing requirements and the burden of debt and debt service payments as well as creating fiscal space needed for increased social spending, particularly on health, education, and social protection, and productive public investments.

On the other hand, the report predicted that the government debt-to-GDP ratio would resume its downward trajectory over the medium term with continued fiscal consolidation.

As per the report, the government debt-to-GDP ratio rose to 88.3 percent at the end of June 2022, up from 87.9 percent a year earlier.

“The debt-to-GDP ratio is expected to benefit from favourable debt dynamics, as real GDP growth is expected to surpass real interest rates during FY2022/2023. However, valuation effects from the exchange rate as well as extrabudgetary transactions that result in additional debt accumulation are expected to lead to an uptick in the debt ratio. Fiscal consolidation is expected to pick up pace over the medium term putting the debt-to-GDP ratio on a sustainable downward path,” the report explained.

In this regard, the report said that government debt management reforms have achieved material improvements in the debt profile, but the maturity structure and currency composition continue to pose challenges, citing the government’s better debt management practices that have successfully prolonged the average time-to-maturity of the budget sector debt to 3.1 years in June 2022, up from 2.8 years in June 2018, 2.1 years in June 2016, and an even shorter maturity of 1.3 years in 2013.

“Nevertheless, the domestic portion of government debt remains mostly short-term.  This entails interest rate and rollover risks. Further, the rise in the foreign-currency denominated portion (27 percent of government debt) entails exchange rate risks,” the report forecasted.

The report said that improved learning outcomes are key to driving long-term growth in Egypt.

“Despite substantial increases in nominal terms in recent years, the budgeted figures for the education sector remain at 2 percent of GDP for FY2022/2023; lower than the level in FY2021/22. Thus, creating the fiscal space (through improved revenue mobilization and streamlining of expenditures) is crucial for allocating resources to priority sectors (such as education),” the report said.

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