Overview

  • The Government of Egypt (GoE) successfully implemented a first wave of macro-economic and structural reforms that successfully addressed a number of deep-seated issues and helped to stabilize the economy, sustain growth and lay the groundwork for more dynamic private sector participation in the economy. 

    In the Financial Year (FY) 2019 (ending June 30th, 2019), real Gross Domestic Product (GDP) growth reached 5.6 percent, up from 5.3 percent in FY18. Data for the first nine months of FY19 show that this pickup is driven by net exports. Private investment is also picking up, although from a low base and with sluggish Foreign Direct Investment (FDI) mainly directed to hydrocarbons.

    On the sectoral side, gas extractives, tourism, wholesale and retail trade, real estate and construction have been the main drivers of growth. Unemployment decreased to 7.5 percent in the fourth quarter ofFY19 (from 9.9 percent a year earlier), although accompanied by shrinking labor force participation.

    The Central Bank of Egypt cut policy rates by 150 basis-points in August 2019, a move that should improve private sector cash flow via its impact on lending rates. The monetary easing was triggered by the remarkable decline in headline inflation in August 2019 to 7.5 percent, due to favorable base effects, as well as moderating food inflation; altogether diluting the inflationary impact of the July 2019 energy price hikes. The budget and primary balances have improved to an estimated -8.3 percent and 1.9 percent of GDP, respectively in FY19, from -9.7 percent and 0.1 percent of GDP a year earlier.

    This comes on the back of the containment of energy subsidies and civil servants’ wages, in addition to increased revenues collection (notably from the VAT and income tax). In tandem, even though significant risks remain in terms of debt size, composition and contingent liabilities, government debt is estimated to have decreased to 90.5 percent of GDP in end-June 2019, from 97.3 percent of GDP in end- June 2018, with the decline mostly stemming from the domestic portion, which accounts for 80 percent of Egypt’s debt. Egypt’s external position has stabilized at broadly favorable levels, as foreign reserves reached US$44.97 billion in end- August 2019 (covering around eight months of merchandise imports). The Egyptian pound strengthened against the US$, reaching EGP/US$16.4 by mid-September 2019; cumulatively appreciating by around 16 percent since the Pound’s weakest point around mid-December 2016.

    While macroeconomic environment has improved, social conditions remain difficult. Between 2016 and 2018, nominal wage growth fell below inflation. Official estimates reported that the share of the population living below the national poverty line in FY18 increased to 32.5 percent, from 27.8 in 2015, with the highest poverty rates still in rural Upper Egypt.

    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 expanded targeted conditional and unconditional cash transfer programs. 

    Last Updated: Oct 01, 2019

  • The World Bank Group’s current engagement is guided by the Egypt Country Partnership Framework (CPF) 2015–19, and the Performance and Learning Review (PLR) – which resulted in the extension of the CPF till 2021 - focuses on fighting poverty and inequality, 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.

    The CPF, comprises three interconnected strategic focus areas that are consistent with the GoE’s longer-term development strategy: i) improving governance, ii) improving opportunities for private sector job creation, and iii) social inclusion. The CPF was designed to remain flexible so that it could respond to the country’s evolving needs, while bringing integrated development solutions that are customized to Egypt’s specific context with world class expertise. 

    The two-year extension granted as part of the PLR that was endorse by the Board of Directors in May 2019, well positions the WBG to build on its existing strategy in Egypt to achieve still greater impact, by rolling out corporate priority initiatives on Mobilizing Finance for Devlopment/Cascade approaches, human capital development, and enable the transitioning to a digital economy.

    The extension would also pave the way to supporting a key goal of the Bank’s Regional Strategy, which is the “Renewal of the Social Contract” by addressing regional disparities through the Bank’s interventions in Egypt’s lagging regions, strengthening the country’s social safety net system, improving accessibility to low-income housing, expanding access to water and sanitation services (especially in rural areas) and household natural gas, while moving rigorously on the implementation of the education and health reform programs.

    Last Updated: Oct 01, 2019

  • The Government of Egypt supported by the World Bank Group has achieved significant results across all three focus areas under this CPF. Policy reforms supported by the US$3.15 billion Development Policy Finance program- consisting of three operations over a period of three years (2015-2017) have 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, while 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. The environment for investors has been strengthened by amending the Investment Law, implementing the Competition law, and reforming the industrial licensing regime, which helped reduce the time taken in providing licenses to low risk industries by 80%.  

    The WBG has been supporting the Government of Egypt to mitigate the potential adverse effects of the first wave of reforms on the poor and the middle class. In line with the Egypt CPF, the Bank has financed and informed the design of key flagship projects and programs, using various financial instruments (IPFs, DPFs, and ASA), (i) to enhance social protection programs; (ii) to support sustainable job creation activities; and (iii) to improve quality service provision in the country. Some of the concrete and active interventions are summarized below:

    • The Bank has supported the government in designing and scaling up social safety net programs, including the Takaful and Karama cash transfers. Due to the success of this program, a US$500 million Additional Financing supporting Egypt’s social safety net program was signed on September 11th, 2019. The program has reached approximately 2.25 million households (over 10 million citizens), with a total finance reaching $900m. The Additional Financing has a strengthened focus on economic inclusion and graduation from social safety net schemes.

    • The $500m Upper Egypt Local Development Program for Results is improving local government capacity to better deliver services to citizens and improve local economic conditions in two of Egypt’s poorest governorates, Qena and Sohag with a total population of 7.75 million citizens. To date, government to business services are on track for improvement with occupancy rates in industrial zones 30 percent higher on average and implementation of streamlined processes for obtaining Construction Permits being initiated; Governorates and Districts engaged citizens and businesses in the development of their last two annual capital investment plans, which are now under implementation. 

    • The Household Gas Connections Project will provide 2.3 million households residing in rural areas, with reliable, lower cost, grid connected natural gas supply by 2021. 1.02 million households have already been served to date.

    • The Sustainable Rural Sanitation Services Program (total $850m including Additional Financing), will bring sanitation services to 1,727,000 people living in highly polluted villages and satellite areas of the Nile Delta, through the construction of household connections and wastewater treatment facilities. The Program empowers and incentivizes, local water and sanitation companies, to deliver effective, inclusive and accountable decentralized services to the communities. It has reached 30,000 beneficiaries to date. 

    • The $500m Inclusive Housing Finance Program aims to improve the affordability of low-income housing by strengthening the capacity of the Social Housing Fund to design policies and coordinate programs in the social housing sector. Out of the 830,000 low-income households targeted by the Program, 243,450 accessed ownership or rental housing to date, 20 percent of which are in the bottom 20 percent of the income distribution.

    • Increasing access to health care services and eradicating Hepatitis C is being realized through the $530m Health Care Quality Improvement Project. So far more than 3 million citizens in the poorest villages of Upper Egypt have been given access to a basic package of health, nutrition and population services, while over 50 million citizens allover Egypt have so far been screened for Hepatitis C and noncommunicable diseases. Now the Bank is supporting GoE to implement the Universal Healthcare Bill.

    • The $300m Promoting Innovation for Inclusive Financial Access Project is expanding access to finance for micro and small enterprises in underserved regions, using innovative financing mechanisms, with a special focus on youth and women. 171,193 small and medium businesses accessed credit to date, 42 percent of which were women, 39 percent were youth, and 40 percent operated in Egypt’s lagging regions. This resulted in 298,483 new jobs. The recent $200m Catalyzing Entrepreneurship for Job Creation Project will further foster job creation and improve economic opportunities for 185,000 entrepreneurs, of which 30 percent are women and 30 percent youth. 

    • The $500m Egypt Education Reform Project aims to improve teaching and learning conditions in public schools, with a focus on (i) improving early childhood education, (ii) reforming the students’ assessment system and (iii) enhancing student education service delivery through digital learning resources and connected systems.

    • A series of development policy operations has supported policy reforms contributing to redefining the social contract and strengthen resilience, by moving away from subsidized goods to market-based solutions, removing red tape in the manufacturing sector, with the goal of promoting private sector-led growth for job creation and enhancing accountability and transparency. Importantly, sound fiscal consolidation supported through the Bank DPF operations allowed the Government of Egypt to redirect fiscal savings to the conditional cash transfers program, food subsidy, and social pensions programs. The DPFs also supported measures to improve access to finance and strengthen financial inclusion especially for small firms and entrepreneurs through the creation of a movable collateral registry (the first in the Middle East). 

    In addition to the financial support, a rich program of Advisory Services and Analytics (ASA) is assisting in the identification and implementation of reforms. A selection of Bank executed ASA includes:

    - Supporting the government in designing and implementing policies aiming to create fiscal space for social spending (food subsidy and pension reform), improve the business climate for private sector growth and job creation (procurement reform, industrial reform, contract enforcement and insolvency, liberalization of the gas market) and foster inclusive institutions and spatial equity (fiscal decentralization reform). 

    - Building the evidence base on Women Economic Empowerment, Poverty and Inequality, opportunities and challenges for Private Investment and Commercial Financing in key economic sectors, and the impact of the Takaful and Karama Program. 

    Last Updated: Oct 01, 2019

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LENDING

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

*Amounts include IBRD and IDA commitments


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Additional Resources

Country Office Contacts

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