Egypt’s long-standing challenges have intersected with multiple global shocks causing a foreign exchange crisis, historic inflation, and pressures to worsen the already-stretched fiscal and external accounts. While triggered by the global poly-crisis, the rising macroeconomic imbalances in Egypt reflect pre-existing domestic challenges, including the sluggish non-oil exports and FDI, constrained private sector activity and job-creation (notably for youth and women), as well as the elevated and rising government debt. Below-potential revenue mobilization is further limiting the fiscal space required to advance human and physical capital for the Egyptian population which exceeds 105 million, almost 30 percent of whom are below the national poverty line, according to 2019 official estimates.
In response to the concurrent shocks, Egyptian authorities have been undertaking a series of policy adjustments. These include raising key policy rates, allowing the exchange rate to depreciate substantially since March 2022 to clear foreign exchange market distortions, and introducing social mitigation measures (including increases to pensions, food subsidies and expansion in the coverage and allocations of the cash transfer programs) to partially shield the vulnerable. The 46-month IMF Extended Fund Facility (approved in December 2022) is expected to support the gradual restoration of macroeconomic stability and to underpin structural reforms, including those outlined in the State Ownership Policy to enhance competitive neutrality for improved private sector participation.
Economic activity has been adversely impacted by the overlapping global shocks as well as domestic supply bottlenecks, with growth declining to 4.2 percent during FY23 (July 2022—June 2023) from 6.6 percent a year earlier. Further, inflation has been in the double-digits since March 2022, accelerating to 37.4 percent (food inflation at 71.7 percent) in August 2023. And while total foreign exchange resources (including ‘official reserves’ and ‘other foreign currency assets’) have started to recover from their sharp drop in March 2022 (last reported at US$42.9 billion at end-August 2023), hard currency supply remains a key challenge.
Egypt’s overall macroeconomic environment during FY2023/24 is expected to be undermined by the concurrent global shocks and domestic macroeconomic imbalances, before starting to improve over the medium-term as the country continues to push ahead with stabilization and structural reforms. Creating fiscal space remains crucial to advance Egypt’s human capital. Importantly, continuing to pursue reforms (including enhanced trade policy and facilitation, effective implementation of the State Ownership Policy, fostering competition, strengthened governance and rule of law, 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: Oct 10, 2023