- Economic outlook for Egypt in 2016 remains cautiously optimistic, partly based on the government’s ability to deliver on expectations, as well as effective implementation of the Sustainable Development Strategy and ongoing macroeconomic reforms.
- Growth is expected to accelerate, conditional on improved investor confidence, although global economic headwinds present challenges to the outlook.
- Overall, success will be demonstrated by effectively addressing long-standing domestic challenges of low and non-inclusive growth, and the implications of high population on the sustainability of urban growth.
There has been a lengthy political transition following President Mubarak’s removal from office in 2011. The formal “political roadmap” has now been completed. A fragile security situation, however, reflects the fight against radical Islamists. Meanwhile, growth has been steadily picking up, driven by the gas, manufacturing and real estate sectors, alongside an increase in foreign direct investment (FDI). But tourism performance weakened following the bombing of a Russian tourist aircraft at the end of October 2015, and import-dependent industries faced foreign exchange shortages, resulting in reduced activity. The cautiously optimistic 2016 economic outlook is largely based on the government’s ability to deliver on its policy reforms and growth strategy.
Throughout 2015 the authorities faced continuing policy pressures. Recent sluggish economic growth and an expansionary fiscal policy led to the fiscal deficit remaining large. In response, the government’s fiscal consolidation exercise aims to increase revenues and rationalise expenditures, with savings directed towards social safety nets. To finance the deficit, the government borrowed heavily, which pushed domestic debt up significantly, crowding out the private sector. Faced with these strains, the Central Bank of Egypt (CBE) laboured with some success to strike a balance between curbing inflationary pressures and boosting growth while keeping the exchange rate steady. The CBE may decide to ease monetary policy in the rest of 2016 to prevent growth from slowing. However, a tight stance will be needed to support the Egyptian pound (EGP), given the sharp fall in foreign exchange reserves.
On the assumption that the government continues to implement its economic reform programme, the prospects for 2016 and beyond suggest a steady recovery. Success in stabilising the economy and boosting growth will be demonstrated by lowering the fiscal deficit while at the same time increasing pro-poor spending; managing price stability in a context of exchange rate uncertainty; increasing meaningful employment (especially among the young); enhancing the business environment; and improving security and strengthening social justice.
Egypt continues to work towards achieving sustainable cities and structural transformation. However, strains are evident, such as Egypt’s high population growth that has major implications for the sustainability of urban growth. As job-seekers move to urban areas, city populations will rise, adding more strains on urban infrastructure. Moreover, urbanisation has a direct impact on Egypt’s food security, given urban sprawl has overrun crop-growing areas. The government of Egypt has financed several new projects in response to urban growth. These include those in Upper Egypt, northwest coast and along the new Suez Canal.