The Government of Egypt (GoE) is implementing bold reforms to address the deep-seated issues needed for achieving the World Bank Group’s twin goals of eliminating extreme poverty and promoting shared prosperity. The reforms, supported under the Country Partnership Framework, have helped to stabilize the economy.
In FY18, real gross domestic product (GDP) grew by 5.3 percent, compared to an average of 4.3 percent in the three years before. This pickup in growth has been driven by public investments, private consumption, and exports of goods and services, while the private sector response is delayed. Although still high, inflation has begun to ease over the past 18 months, slowing from a record 33 percent in mid-2017 to 12.7 percent in January 2019. The positive impact of macroeconomic and policy reforms has markedly improved Egypt’s external position. The current account deficit narrowed to 2.4 percent of GDP in fiscal year 2018, down from 6.0 percent in the previous year, driven primarily by strong remittances and the recovery in tourism. A resurgence of portfolio and international financial institution inflows has supported the capital and financial account. Important fiscal reforms on both the expenditure and revenue sides have prompted a gradual decline in the fiscal deficit, but the public debt ratio remains elevated. Over the past three years, the overall fiscal deficit narrowed by three percentage points to 9.7 percent of GDP in FY18, while the deficit in the primary balance improved by 3.6 percentage points—and turned positive for the first time in more than 15 years—during the same period. The new value-added tax (VAT) regime, introduced in September 2016, boosted tax revenues, while energy subsidy reforms and measures to rein in the wage bill reduced expenditures as a share of GDP. Still, the debt ratio remains high at 98.7 percent of GDP in FY18.
To alleviate the adverse effects of the economic reforms on the poor and vulnerable and increase investments in Egypt’s human capital, the government has scaled up key short-term social protection mitigating measures, including through higher allocations of food smart cards and targeted conditional and unconditional cash transfer programs. To effectively achieve human development through social protection measures, the conditionality of the cash transfer programs is related to health and education and complemented by the launch of ambitious reforms in the education and health sectors to strengthen the supply side of the equation and improve Egypt’s human capital outcomes. The country’s social protection measures are shifting from generalized energy and food subsidies to more integrated poverty and human development targeted programs. Job creation to reduce unemployment, especially for the youth, and absorb around 700,000 new entrants to the labor market over the coming five years is a key challenge ahead.
lastupdated: Apr 01, 2019