Egypt’s economic growth is expected to reach 2.8% during fiscal year (FY) 2020/21, and rebound strongly to 5.2% in FY 2021/22, according to Celine Allard, International Monetary Fund (IMF) Mission Chief for Egypt.
However, the country’s outlook remains clouded by uncertainty related to the novel coronavirus (COVID-19) pandemic.
Allard’s remarks came during a virtual press conference held on the completion of the IMF’s second review for Egypt’s economic reform programme, supported by the IMF Stand-By Arrangement (SBA) and the 2021 Article IV Consultation on 23 June.
Talking about the risks that Egypt’s macroeconomic stability faces going forward, she said that the first risk is really related to how the pandemic unfolds, both internationally and in Egypt, and the related pace of vaccination in Egypt, in particular. This will have implications on tourist arrivals in Egypt.
She said that the second risk is related to Egypt’s high debt and large gross financing needs, which makes the country vulnerable to external shocks, in particular, to market sentiment.
Allard said that the continuation of policies that are both prudent and balanced, are the best way to mitigate those risks, and that’s why near term policies by the Egyptian authorities targeted both preserving macroeconomic stability and supporting the massive recovery.
“Egypt remains vulnerable to shocks, due to its high public debt and gross financing needs. So in that context, the authorities’ near term fiscal and monetary policies rightly aim to support the recovery, while continuing to preserve macroeconomic stability,” she said, “Subsiding, deepening, and broadening structural reform will be essential to help unleash Egypt’s enormous growth potential.”
On 23 June, the IMF’s Executive Board completed the second and final review of Egypt’s reform programme. This allows the Egyptian authorities to draw SDR 1.158bn (about $1.7bn), and brings total purchases to SDR 3.763bn (about $5.4bn).
In her speech, Allard said that Egypt entered COVID-19 crisis with sizable buffers, thanks to reforms implemented by the authorities since 2016.
“Faced with unprecedented domestic and global uncertainty, the authorities’ policies struck a balance between ensuring targeted spending to protect necessary health and social expenditure and preserving fiscal sustainability,” Allard said, “In that context, the IMF programme just concluded aims to address balance of payment needs arising from the pandemic, help build international reserves, and support the authorities’ effort to maintain macroeconomic stability while preserving achievement made over the prior years, and advance key structural reforms.”
The IMF currently projects Egypt’s external debt to reach 36% of GDP by the end of FY 2020/21, which is relatively moderate compared to other emerging market countries in the world, according to Allard.
“In addition, out of that 36% of GDP, about 20% corresponds to general government external debt,” she said.
Allard noted that the authority’s structural reform agenda, recently launched, targets more inclusive and sustainable private sector-led growth, with the aim to create durable jobs and improve external resilience.
She said that this will require sustained efforts to reduce the role of the state, and enhance governance, strengthen social protection, improve the business environment, deepen financial markets, and increase integration in global trade.
Allard stressed that the IMF will remain closely engaged with the Egyptian authorities, and will continue to support the reform agenda to help deliver strong and inclusive medium term growth.