Egypt’s Economy Growth in 2018
by Admin on January 19, 2019
Egypt’s enconomy did indeed preserve a consistent and robust growth rate throughout the year of 2018. This was due to an increase in gas production in conjunction with new fiscal changes that were introduced with two primary aims, to setup strong foundations for future expansion within the economy and to reduce the budget deficit.
Stated in a report that was released in November 2018, the International Monetary Fund (IMF) set out their forecast that Egypt’s GDP would increase by 5.3% during the year. This in itself being a 1.1% increase from the growth of 4.2% that was recorded in 2017. If this forecast proved correct it would be the largest rate of growth since the year of 2008. This predicted forecast was backed up by figures released from the Central Bank of Egypt; which also reported a yearly growth forecast of 5.3%. IMF estimates that GDP will grow by 5.5% in 2019 and 5.9% in 2020, powered mainly by a recovery in tourism and rising natural gas output.
The key factors that played a role in this growth included an improvement in performance of extraction industries which reported a 9% increase, a 4.2% increase in the manufacturing sector as well as retail and trade sector, and finally an impressive 4.1% increase in the real estate sector.
Increased foreign currency reserves in Egypt as the government puts a stop to Liquid Natural Gas Imports
Along with this annual growth rate there was a rise in the foreign currency reserve levels in the country, which was recorded at a total of 42.5 billon USD at the end of December 2018. Compared to the figure recorded at the close of the year in 2017 which sat at 37 billion USD. All of this information is obtained from data released by the Central Bank of Egypt on the 8th January 2019. The increase in foreign currency reserves could be further strengthened by an expected drop in Egypt’s import bill in the coming years. This is contributed to by the government stopping forthcoming shipments of natural gas after being able to meet self-sufficiency targets. Experts state that Egypt will be able to make savings of around 3 billion USD following the halting of these imported shipments of LNG.
Gas production domestically within Egypt for 2018 is going to be around 60 billion cubic metres. Compared to figures recorded of 49 billion cubic metres in the year of 2017. Experts also forecast figures of 72 billion cubic metres for 2019. The rise in these figures will both increase the levels of gas available for internal consumption and will also provide more opportunities for Egypt to export this gas.
Due to budget progress fiscal reforms are to continue
Fiscal reforms within Egypt are receiving much external support from outside influencers such as the World Bank and the International Monetary Fund pledging their confidence in the reform programme created by the government. In October 2018, the International Monetary Fund made the announcement that they were going to release a further instalment of 2 billion USD of the total of 12 billion USD loan deal made with the country. This means so far the total amount of disbursements of the loan deal is 10 billion USD. This new release of funds followed a fourth review conducted by the International Monetary Fund into the progress of the reform programme, with the conclusion being that the Egyptian economy was indeed performing well.
With regard to the reform process, this was an agreement spanning the length of three years that was created in November 2016. This binds the Egyptian government to supporting a series of fiscal reforms. These include measures such as increase taxes, reducing spending and removing the option of fuel subsidies. All of these are designed with the intention of helping balance the budget and to encourage an increase and stimulation in economic activity. These reforms have reduced the deficit fiscally from a total of 12.5% of GDP in the fiscal year of 2015 to 2016 to just 9.8%. Experts anticipate this figure to reach as low 8.4% by the end of the fiscal year of 2018/2019.
The International Monetary Fund said that these fiscal measures did reduce the debt of the government from a total of 103% GDP in 2016/2017 to 93% in 2017/2018. Meanwhile Egypt is expected to see a 5.5% in GDP growth during the year of 2019. Due to these increases many predict that the final instalment of the loan will be given in January.
The programme of these fiscal reforms received support from the World Bank who pledged their commitment to a 1 billion USD loan. This will be mainly to encourage growth of small businesses. This is intended to further support previously WB –Funded programmes in Egypt.
Rates remain stable as inflation is on the decrease
On top of all the other achievements reaped from these reforms, inflation continued to decrease in 2018 and was backed by the monetary policy of the Central Bank of Egypt. Interest rates were at 17.1% at the start of 2018. The Central Bank of Egypt then began to lower the benchmark rate from 18.75% down to 16.75% during the months of February and March. This was at the same time as a decrease in a year low inflation level being recorded of 11.4% in May. Following this decrease it did then rise to 17.7% by October before coming back down to 12% in December.
Keeping inflation stable and under control has proved a challenge for Egypt. This was primarily due to floating the pound in November of 2016. This means the country’s currency lost a total of 50% of its value before eventually stabilising out. The rise in inflation during this period led to a record high level in the past three decades of 33% in July of 2017 which increased pressure on businesses and private customers.
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