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Egypt - Economic Governance and Energy Support Program III (EGESP III)
Egypt’s government has made important progress in improving governance and maintaining the structural reform agenda under the three-year International Monetary Fund program. Reflecting a challenging fiscal year, GDP grew by 4.1% in FY2016/17, compared to 4.3% in FY2015/16. Starting from FY2017/18, broad-based growth should take hold and accelerate to 4.8%. Egypt’s fiscal deficit fell from 12.5% in FY2015/16 to 10.9% of GDP in FY2016/17, its lowest level in the last five years, and is projected at 9% of GDP in FY2017/18. Over the same period, the primary balance, which strips out interest payments, fell from -3.5% to - 1.8% of GDP and should become positive in FY2017/18 (+0.24%). The country has reformed subsidies, introduced value-added and new taxes, and curtailed growth in public sector wages to both increase revenue and reduce expenditures. Investor confidence has increased since the government liberalized the exchange rate and secured the USD 12 billion IMF loan in November 2016. As a result, portfolio and foreign direct investment inflows significantly increased. Improved competitiveness has boosted the country’s exports to the rest of the World. Net international reserves doubled between June 2016 and October 2017.In addition, for the first time since 2011, unemployment rates recorded a decrease from 12.5% in 2016 to 11.98% in 2017. However, the currency depreciation contributed to increases in inflation and the level of debt. Despite a tight monetary policy, inflation surged to 23.3% (year-on-year percentage change) in June 2017 to reach 31.9% in August 2017. The Government has expanded its social protection programs in order to mitigate these effects and support social welfare.