Экономические исследования
Egypt

Egypt

Population 97.0 million
GDP 2,573 US$
C
Country risk assessment
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Business Climate
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Synthesis

Major macro economic indicatorS

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 4.2 5.3 5.6 3.0
Inflation (yearly average, %) 23.3 21.6 13.9 8.5
Budget balance (% GDP) -10.9 -9.8 -8.2 -7.5
Current account balance (% GDP) -6.1 -2.4 -2.8 -3.0
Public debt (% GDP) 103.1 92.7 90.2 83.1

 

(e): Estimate. (f): Forecast.

STRENGTHS

  • Tourism potential
  • Limited external debt
  • Political and financial support from the Gulf monarchies and Western countries
  • Large gas reserves

WEAKNESSES

  • Poverty and high unemployment
  • Persistent security issues in the Sinai region
  • Twin deficits
  • Banking system vulnerable to sovereign risk
  • Weak manufacturing exports

RISK ASSESSMENT

Robust growth, despite a less buoyant external environment

After strengthening further in 2019, growth should remain robust in 2020 despite a slowdown due to weakening external demand. In particular, Europe, the main source of export revenues (including those from tourism), is expected to contribute to the moderation in growth. The trade balance should, however, continue to contribute positively, driven by the expansion of liquefied natural gas (LNG) production, which will continue with the Zohr field (discovered in 2015). New discoveries in the Gulf of Suez will continue to make the country an attractive investment destination and support the expansion of the sector. More generally, the improving business climate will help to make investment the main contributor to growth, despite the fact that the IMF programme, which played a major role in restoring investor confidence, ended in June 2019. Besides gas, the infrastructure development programme will draw investment. As a result, construction will remain dynamic, with, in particular, the continuation of social housing programmes and the establishment of the new administrative capital east of Cairo. Conversely, consumption will continue to make a moderate contribution. Public consumption will be constrained by ongoing fiscal efforts, while private consumption is expected to continue to suffer from endemic poverty and relatively high inflation. Tamer inflation, particularly in terms of food, coupled with reduced unemployment should nevertheless support household income.

 

A less vulnerable economy, despite the twin deficits

In the 2019/2020 financial year, the budget deficit is expected to continue to narrow, while the continued gradual reduction of fuel and energy subsidies should contribute to lower spending. Meanwhile, capital investment expenditure is set to increase to support infrastructure projects, as is the state wage bill, following President Sissi's decision to raise the minimum wage for civil servants. Compounding the impact of salaries, current expenditure will also be burdened by high interest payments. In a context of robust growth, the increase in revenues, supported by continued tax administration reforms and privatisation proceeds, should nevertheless lead to a reduction in the deficit. The latter will be mainly financed by debt, particularly from external sources, while the debt stock is mainly domestic. The primary fiscal surplus (budget balance excluding debt service) and dynamic growth should allow the debt-to-GDP ratio to continue to decline and reduce the risk of debt distress.

The current account deficit is set to deteriorate slightly. Despite the increase in natural gas production, which should continue to reduce the energy import bill, exports will likely suffer from softer external demand. As a result, the trade balance deficit is expected to remain high. The surplus in the services account could be affected by lower tourism revenues, as well as by a decline in revenues from the Suez Canal. The global economic slowdown may also affect remittances from Egyptian expatriate workers and thus erode the positive contribution from the balance of transfers. Interest payments will continue to add to the income account deficit. FDI and portfolio investment flows are expected to finance the current account deficit. However, they may be smaller following the completion of the IMF programme. The reduction of the twin deficits in recent years has made it possible to replenish the country’s foreign exchange reserves, ensuring that Egypt is better equipped to cope in the event of a decline in capital inflows.

 

President Sissi plays extra time

Re-elected with 97% of the vote in April 2018, President Abdel Fattah al-Sissi saw his powers strengthened after the adoption by referendum in April 2019 of constitutional amendments that, among other things, extend the presidential term from four to six years and allow him to run for a third consecutive term in 2024. The referendum, which also gave the President direct control over judicial appointments and consolidated the role of the army, has reinforced the perception that the executive has a firm grip on public life. The army’s control of many of the country’s economic levers degrades the perception of the business climate. While poverty remains widespread, frustration over centralisation of power in the hands of the President and the extension of the presidential mandate could be compounded by social unrest that has little room to express itself. Rare anti-government protests, even though rapidly contained, notably erupted in late September 2019. In addition, the Egyptian regime continues to play a pivotal role in regional stability and the fight against terrorism, which enables it to maintain close relations with Europe and the United States, but also with the United Arab Emirates and Saudi Arabia. The government is also working to strengthen ties with Russia and China. Relations with Ethiopia continue to stumble over the construction of the Grand Renaissance Dam upstream of the Nile, on which about 90% of the country’s drinking water supply depends.

 

Last update: May 2020

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