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Overview

A solid bounce-back prior to the war in Ukraine supported an increase in economic growth to 6.6 percent in FY2021/22, double the pace of the previous year. But economic activity has been adversely impacted by multiple global shocks, as captured by leading indicators in recent months, notably with the rising cost of domestic and imported inputs. Headline urban and core inflation accelerated to 13.1 percent and 13.7 percent respectively on average during March—August 2022; exceeding the CBE’s target (7 +/-2 percent), on account of global price dynamics, exchange rate depreciation, and domestic supply bottlenecks. In response, the CBE raised key policy rates in March and April 2022 cumulatively by 300 basis points, and allowed the exchange rate to depreciate.

Notwithstanding the monetary policy adjustment, the war in Ukraine intensified pre-existing pressures on external accounts. Official reserves and foreign currency assets decreased sharply; jointly reaching US$37.4 billion at end-August 2022 (from US$54.5 billion at end-February 2022)—despite financial support from the GCC as well as the successful issuance of Egypt’s first Samurai bond.

The budget deficit-to-GDP ratio continued to narrow in FY2021/22, thanks to the uptick in tax and non-tax revenues, as well as the containment of expenditures. Nevertheless, the debt-to-GDP ratio increased mainly due to the adverse valuation effect of the exchange rate depreciation.

The government announced social mitigation packages that include widening coverage of the Takaful and Karama cash transfer programs, hikes to pensions and public sector wages, and tax measures, among other actions to alleviate the impact of rising prices. Moreover, Egypt requested International Monetary Fund (IMF) support to implement a comprehensive economic program to address the negative spillovers from global economic conditions and the war in Ukraine, restore macro-fiscal stability and anchor the structural reform program.

Egypt’s overall macroeconomic environment during FY2022/23 is expected to be undermined by the concurrent shocks, before starting to improve over the medium-term. Creating fiscal space remains crucial to advance human and physical capital for the Egyptian population, which exceeds 104 million. Importantly, continuing to pursue reforms (including enhanced trade policy and facilitation as well as improvements in the broader business environment) can unleash the private sector’s potential in higher value-added and export-oriented activities necessary for job-creation and better living standards.

Last Updated: Nov 01, 2022

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Maissa Abdalla
+ (202) 246 199 83/4/5