The political transition process initiated in June 2013 came to an end with the election of the House of Representatives in December 2015. The economy started to recover in 2014/15, as the government scaled up infrastructure spending and undertook important measures to restore macroeconomic stability by moving away from universal subsidies towards a more targeted transfer program, taking measures to contain the wage bill and increasing tax revenues.
As such, growth rebounded to 4.2 percent in 2014/15, double the growth during the previous four years. Preliminary figures for the first quarter of 2015/16 indicate that the economic uptick has faded somewhat, mainly due to the foreign exchange shortages that stifled production, and undermined Egypt’s competitiveness.
The Central Bank of Egypt has thus moved towards a more flexible exchange rate management regime in mid-March 2016; alleviating pressures on the external accounts and partially resolving a binding constraint on economic activity. Financial soundness indicators point to the continued resilience of the banking sector, and the government is making efforts to deepen financial inclusion. Nevertheless, continued fiscal and economic reforms are needed to sustain growth.
Egypt has also made significant strides in human development indicators: child mortality, life expectancy, primary and secondary school enrollment, and literacy rates have improved dramatically in the past thirty years. Here too, however, governance issues continue to affect health and learning outcomes. To protect the poor, the government has targeted 1.5 million households in a new cash transfer program.
Far-reaching structural reforms are needed to transform Egypt’s economy into a dynamic system that can reduce poverty, create productive employment opportunities, and maintain social and political stability. Economic growth in the past three decades has been moderate and uneven, and insufficient to reduce poverty or absorb the rapidly growing supply of labor. Poverty rates have been persistently high, at about one-quarter of the population, concentrated in Rural Upper Egypt, and unemployment remains high, particularly for women and youth. At the same time, the fiscal deficit is still large, reserves are only at about 3 months of imports, and political and social risks remain because their underlying causes – shortage of formal sector jobs, high unemployment and underemployment among Egyptian youth, and exclusion of poor segments of the population – persist.
A recent rebound in the population growth rate combined with the echo boom from the last population bulge has resulted in a second youth bulge nearly 50 percent larger than the first. This will increase pressures on the labor market, infrastructure, social services, and the environment, making it even more urgent for Egypt to undertake wide-ranging structural and policy reforms.
Last Updated: Apr 01, 2016