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Wednesday, 16 June 2021

Egypt: Ambitious economic reforms ahead

The government is targeting increasing exports and industrial and agricultural output in a new economic reform programme

Safeya Mounir , Thursday 6 May 2021
Egypt’s new reform program aims to boost production and exports (photo: Reuters)

A new set of reforms was announced by the government last week, focusing on structural reform to the economy. The three-year programme comprises a set of policies meant to boost production and going beyond the 2016 International Monetary Fund (IMF)-backed programme of reforms.

The new structural reform programme involves trade liberalisation, the upgrading of the vocational training system, and developing financial markets. It also targets reforms in the labour market, provides new job opportunities, develops the education sector, and increases the local manufacture of products.

“Previous reform programmes targeted the demand side of the economy, focusing primarily on reforming the budget and the trade balance,” explained Sara Saada, a senior economic analyst with CI Capital, adding that the new programme targets the supply side.

The first phase of the government’s earlier economic reform programme was concerned with reducing subsidies on fuel and directing the savings to social spending, Saada said. Spending on social protection had increased during the first phase of the programme, and between 2016 and 2019 there had been work on boosting tax revenues and increasing financial inclusion.

Saada said that the new and second stage of the government’s economic reforms intended to encourage foreign and local investment and to remove obstacles facing investors. It would work on shortening customs exemption periods, eliminating bureaucracy, encouraging private investment, facilitating communication between investors and government agencies, and expanding e-payments.

The government is targeting increasing growth to six or seven per cent over the next three years. The IMF anticipates that Egypt can achieve 5.8 per cent growth by 2025-26.

Amr Al-Alfi, head of research at Prime Securities, believes the figure will be difficult to attain amid the repercussions of the coronavirus on the global economy. If the pandemic keeps wreaking havoc across the world for another year, Egypt’s economy will not be able to achieve its desired growth rate, he said.

The second phase of the reform programme will also focus on the industrial, communications, technological, and agricultural sectors. It aims to increase their contributions to GDP to 30 to 35 per cent by 2023-24, up from 26 per cent today, and to increase exports from these sectors.

Minister of Planning and Economic Development Hala Al-Said said the programme aimed to increase the flexibility of the national economy and boost its resilience to domestic and foreign shocks by conducting deep-rooted structural reforms and transforming the economy to depend more on production.

When announcing the launch of the second phase of the programme, Prime Minister Mustafa Madbouli said that working methods would be upgraded and Egypt would expand the use of e-payments. He said that the information and communication technology sector’s share in GDP had increased from 2.7 per cent to five per cent at least.

During the first phase of the economic reforms, the government targeted a primary surplus of two per cent of GDP, as agreed with the IMF and international financial institutions. It was also shooting for a gradual decrease in the budget deficit-to-GDP ratio to reach 5.5 per cent in 2023-24.

Madbouli said that unlike in the first phase the second batch of economic reforms would not put additional financial burdens on citizens. During the first phase, which saw Egypt committed to implementing the terms of an IMF loan to acquire further loans, the Egyptian pound was floated and subsidies on fuel were lifted.

Madbouli added that the government wanted people to feel the positive results of the programme’s first phase and that it was pumping in large investments meant to improve people’s standard of living in the coming phase.

Al-Alfi said that increasing exports required bolstering support for exporters, which translates into more spending on this sector. He pointed out that focusing on the exports, industrial, and agricultural sectors was necessary, given that the state’s main source of foreign currency, tourism, had been hard hit owing to the coronavirus pandemic.

He added that tourism revenues were expected to decline throughout the year to 60 per cent of 2019 figures.

*A version of this article appears in print in the 6 May, 2021 edition of Al-Ahram Weekly

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