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Egypt Economic Outlook
Recent macroeconomic and financial developments
In 2021/22, real GDP growth increased to an estimated 6.6%, driven by gas extractives, communications, agriculture, and construction. But manufacturing performed below its potential. On the demand side, growth was driven by household consumption and investment. The fiscal deficit fell from 6.9% of GDP in 2020/21 to an estimated 5.8% in 2021/22, with a primary surplus of 1.2% of GDP. Total spending increased but was compensated by a 15% rise in value added tax revenue and a 40% jump in receipts from property taxes over the previous fiscal year. Public debt fell modestly, from 92.0% of GDP in 2020/21 to an estimated 89.6% in 2021/22, because of a lower budget deficit.
Inflation increased from 4.5% in 2020/21 to 8.5% in 2021/22, led mostly by rising international food and energy prices and the depreciation of the Egyptian pound against the US dollar by 16% in May 2022. The current account deficit narrowed to 3.5% of GDP in 2021/22 from 4.4% in 2020/21 thanks to tourism revenue rising to $10.7 billion from $4.9 billion. The banking system remained profitable and well capitalized, and the nonperforming loans ratio was limited to 3.2% in June 2022. Subsidies and social protection programs have reduced the impact of high food and energy prices on vulnerable households. The poverty rate was 29.7% in 2020. Unemployment remained stable at 7.2% in June 2022.
Outlook and risks
The outlook remains clouded by uncertainty related to the global economic context. Growth is projected to slow to 4.4% in 2022/23. The fiscal deficit is projected to widen slightly, to 6.0% of GDP in 2022/23, and inflation to increase to 20.0%, as a result of high food and nonfood prices and the devaluation of the Egyptian pound against the US dollar. The current account deficit is expected to remain at 3.5% of GDP in 2022/23 and improve to 2.4% in 2023/24 thanks to higher tourism revenue and oil exports. In December 2022, the International Monetary Fund Executive Board approved an Extended Fund Facility Arrangement of $3 billion for Egypt, which aims to maintain economic and financial stability and enhance comprehensive structural reforms. Moreover, the government announced the privatization of $40 billion worth of state-owned enterprises over 2023–27 to give the private sector more room to grow. Need for large external financing remains an important risk.
Climate change issues and policy options
The financing needed for Egypt to adequately respond to climate change is an estimated $19.75 billion a year. If Egypt receives the same $1.25 billion a year in climate finance that it received over 2010–20, the resulting financing gap will be $18 billion a year over 2020–30. The private sector is involved in several projects financed by the Green Climate Fund, the Clean Technology Fund, and multilateral financial institutions, accounting for about 13% of climate finance in 2019–20. However, the private sector is facing some challenges to scaling up its participation in addressing climate change, including lack of technical knowledge, limited access to funds, unclear laws and regulations, and a weak case for adaptation. Key long-term strategic opportunities for the private sector include creating a carbon market, issuing green bonds, establishing 15 new green cities, and implementing the Integrated Sustainable Energy Strategy, which steps up renewable energy in the electricity mix to 42% by 2035. Also, minerals are in large quantities but are yet to be exploited to their full potential. As of 2021, Egypt ranks 28th in proven oil reserves and 18th in proven gas reserves. Egypt’s natural capital could be a source of climate actions and green growth financing, with important involvement of the private sector.
