Overview

  • In 2014, the Government started implementing a bold and transformational reforms program, aimed at spurring the economy, enhancing the country’s business environment and staging a balanced and inclusive growth. The first wave of reforms package focused on rebalancing the macroeconomic aspects, which included difficult policy choices that were adopted simultaneously; such as the VAT Law, reducing energy subsides, containing the high growth of the wage bill and the liberation of the Egyptian Pound. The second wave of reforms targeted improving governance and investment climate, which includes the Civil Service Reform Law, that was passed in October 2016, in addition to a set of undergoing reforms targeting to remove investment barriers and attract local and foreign investments. The Government of Egypt’s reform program is widely endorsed by key Development Partners, including through the World Bank’s programmatic Development Policy Financing (DPF) series, the IMF Extended Fund Facility (EFF) and the African Development Bank parallel financing.

    The implementation of reforms along with the gradual restoration of confidence and stability are starting to yield positive results. The economy is gradually improving with the annual rates of GDP growth reaching 4.3 percent in 2015/2016, up from an average of only 2 percent during the period 2010/11-2013/14, and grew at 5.2% in H1-FY18, compared to 3.7% a year earlier, mainly driven by investment, exports and consumption. The overall budget deficit declined in the first half of FY17 to 5.4 percent of GDP, down from 6.4 percent in the same period in FY16, then decreased by 1 percentage point to 4.4% and 0.3% of GDP, respectively, during H1-FY18 (July/June), compared to the same period the year before. Following the floatation of the local currency, the exchange rate has initially displayed some volatility, but has subsequently started to strengthen, notably with the strong foreign investor demand for local debt instruments. Net international reserves surged to a record high of US$42.5 billion in end-February 2018, after the most recent international bond issuance of US$4 billion Eurobond to help plug the country’s financing needs.

    To alleviate the adverse effects of the economic reforms on the poor and vulnerable, the government has scaled up key social protection short-term mitigating measures, including through higher allocations of food smart cards and targeted cash transfer programs and shifting from generalized energy and food subsidies to more poverty targeted programs.

    Despite the Government’s current efforts, social conditions remain difficult due to the episode of high inflation and the erosion of real incomes. While extreme poverty in Egypt is almost eradicated, high inflation over the course of FY17 has taken a toll on social and economic conditions. Regional disparities are an enduring characteristic, where Upper Rural Egypt continues to lag behind other regions, with poverty rates reaching as high as 60% in some governorates. Although, the unemployment rate has declined to 11.3% in Q2-FY18, reaching its lowest level since 2010, still, unemployment remains high especially among youth and women.

    The ability of the private sector to create jobs (especially for the youth and women) is critical to reap the benefits of the reforms and mitigate the impact on the non-poor but vulnerable and the middle class. To that end, the government has introduced a series of key legislative reforms to enhance the business environment. These include a new industrial licensing law, investment law, bankruptcy law, capital markets law, as well as amendments to the companies law, each dealing with important aspects of the business environment in Egypt. The effect of such extensive reforms on private sector activity and job-creation will depend on their effective implementation.

    Going forward, the economy is expected to continue recovering over the medium-term. Growth is expected to increase and budget deficit is projected to continue declining. However, this positive outlook is conditioned by the Government’s ability to address real sector problems that hinder the competitiveness of the Egyptian economy and undermine growth prospects, in particular, a cumbersome business environment and the absence of a level-playing field.

     

    Last Updated: Apr 16, 2018

  • The Arab Republic of Egypt is one of the founding countries of the World Bank and its third largest shareholder in the Middle East and North Africa region. It is also an important client of the Bank, which began its support of Egypt’s development program in 1959 with the Suez Canal Development Project. 
    Since then, the World Bank has financed 166 projects in Egypt totaling $19 billion, mainly in the areas of water, agriculture, energy, and transport.

    The World Bank Group’s current engagement is guided by the Egypt Country Partnership Framework 2015–19, informed by a rigorous analysis of key constraints to poverty reduction and shared prosperity and by extensive consultations with the government, the private sector, academia, civil society organizations, and youth groups. Egypt, a lower middle-income country, is eligible for financial support from the IBRD, IFC, and MIGA.

    Developed at a critical juncture in Egypt’s history and in a regional context marked by volatility, fragility, and conflict, the 2015–19 framework focuses on fighting poverty and inequality. It emphasizes transformational policy, institutional and investment operations to help Egypt foster a more inclusive and sustainable growth model, create productive jobs, deliver quality services, and more effectively protect the poor and the vulnerable.

    The framework has three pillars:

    1. Enhance governance by encouraging fiscal transparency and efficiency, promoting citizens’ engagement and feedback, and strengthening inclusive institutions.
    2. Create private sector jobs by reforming the regulatory environment to foster private investment, boosting energy-generation and energy-efficiency capacities, enhancing the capacity of key transport infrastructure and services, broadening access to improved agriculture and irrigation services, and increasing access to finance for micro-, small- and medium-sized enterprises.
    3.  Promote social inclusion by increasing access to short-term income opportunities for the poor, strengthening the social safety net system, improving quality health care services, promoting housing for low-income households, improving sanitation and sewage services in rural areas, expanding natural gas connections, and enhancing the quality of the education sector.

    To achieve these far-reaching goals, the World Bank Group anticipates more than doubling its financial support to Egypt. The total amount of new commitments during the framework period will reach $8 billion, including $6 billion from IBRD and an additional $2 billion from IFC. Joint work between IBRD and IFC is expected to be strengthened in three key areas including energy, competitiveness, and skills.

    Last Updated: Apr 17, 2018

  • FISCAL CONSOLIDATION, SUSTAINABLE ENERGY, & COMPETITIVENESS PROGRAMMATIC DEVELOPMENTPOLICY FINANCING

    The US$3.15 billion Development Policy Finance program, consisting of three operations over a period of three years (2015 -2017), has supported Egypt’s homegrown reforms program aimed at enhancing the economy, creating jobs, and achieving sustainable growth, especially in the energy sector.

    • Government revenues have been bolstered through the Income Tax Law (US$ million) (96 of 2015) to unify the top income tax rate at 22.5 percent to apply to all individuals and legal entities. 
    • Government expenditures have been brought under control, especially on wages and salaries (through annual budget instructions, and the automation of the salary payments) and energy subsidies through annual tariff adjustments for gas and electricity.
    • Long term clarity on policy and regulations has been enhanced through progressive laws on electricity and renewable energy that came in force in 2015, and the country moved from power deficits in 2014 to surpluses in 2015 and 2016 while energy subsidies were reduced from 6.6 percent of GDP in fiscal 2014 to around 3 percent in fiscal 2016.
    • The environment for investors is being strengthened by amending the Investment Law, the implementation of the Competition law, and the reform of the industrial licensing regime that is expected to reduce the time taken in providing licenses to low risk industries by 80%. 

    The reforms paved the way for the government to Maximize Finance for Development, with integrated World Bank Group support. The DPF supported policy action in electricity tariff and subsidy management,

    as well as introduction of a renewable energy law, while the International Finance Corporation helped design the landmark solar Feed-in-Tariff program to attract private investment in renewable energy, and led a consortium of nine international banks to invest $653 million in solar energy, with the Multilateral Investment Guarantee Agency providing $210 million in political risk insurance to enable the private investments. With the reform of energy subsidies, Egypt is saving US$14 billion annually, and a large proportion of these savings have been channeled to strengthening social safety nets that are better targeted to the segment of the population most in need.  

    STRENGTHENING SOCIAL SAFETY NETS PROJECT

    The project has helped launch the cash transfer programs Takaful and Karama in April 2015 in Egypt’s most lagging regions. As of 2017, 1.2 million households (or around 9 million of the poorest Egyptians) are beneficiaries of the Takaful and Karama program. Almost all of the beneficiaries of the Takaful program are women and children. 

    EMERGENCY LABOR INTENSIVE INVESTMENT PROJECT

    The project aims to create short-term employment opportunities for unemployed, unskilled and semi-skilled workers (12.3 million person/day of work) and to provide access to basic infrastructure services to the target population in poor areas of the country. As of 2017, twelve million person/days of work were created in community services and small-scale infrastructure subprojects. More than 120,800 direct jobs were created, of which 35 percent benefited women and 70 percent youth. There were 78,214 indirect job opportunities created. Infrastructure works were completed, including the rehabilitation of schools, social units, youth centers, houses and small canals, upgrading of rural roads, and protection of Nile banks. Community services were delivered in several sectors, including education (literacy) and health and environmental promotion and awareness.

    HEALTH CARE QUALITY IMPROVEMENT PROJECT

    The project aimed to assist family health care facilities in Egypt’s poorest 1,000 villages meet national health care quality standards. As of 2017, out of the 1,317 family health care facilities identified for potential support under the project, 1,142 have submitted quality improvement and maintenance plans to the established committee (114 percent of the end target). The verification for accreditation process was triggered, and 551 family health facilities were verified. Doctors have been contracted for most of the facilities that lacked physician-provided services.

    PROMOTING INNOVATION FOR INCLUSIVE FINANCIAL ACCESS PROJECT

    The project aims to expand access to finance for micro- and small enterprises in Egypt using innovative financing mechanisms, with a special focus on youth, women, and underserved regions. As of 2017, More than 55,588 entrepreneurs, 38 percent of whom were women and 40 percent youth, were provided access to finance. A venture capital department was created in the Social Fund for Development and three proposals have been approved.

    Last Updated: Apr 21, 2018

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LENDING

Egypt: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments


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