Exactly one year ago, in an article titled: “So how is the Economy”, we spoke about the reality, mistakes and solutions for the Egyptian economy. Now, as the as final preparations are underway for Egypt’s Economic Development Conference which is set to take place in Sharm El-Sheikh, the same question comes back to mind: Are we on the right track?
The International Monetary Fund (IMF) has said in a statement late last month that “recent economic measures enacted in Egypt under President Abdel Fattah Al-Sisi are beginning to produce results after years of economic stagnation”. While Egypt has dealt with an anemic growth rate over the past five years which did not exceed 2%, now GDP has increased by 5.6% in the first half of fiscal year 2014/2015.
Egypt’s leadership has taken several steps to bring about some structural and fiscal changes. The overhauls, included cuts to fuel subsidies, attempts to fix persistent government budget deficits, and exchange controls. There have also been attempts at transforming the legal environment to be more investor friendly with the government resolving of over 270 investors’ disputes over the past six months (according to the Ministry of Finance) and with the issuance of the long anticipated Unified Investment Law.
More importantly, for the first time in the past five years, Egypt seems to have a medium term economic strategy. This medium term economic development strategy has three key pillars:
Restore fiscal sustainability through the implementation of fiscal reforms such as tax reforms and expenditures rationalization. This will allow space for improved quality of living through increased spending on health, education & R&D
Implement key legal, regulatory and institutional reforms. This will lead to expanded private sector investment opportunities and will also result in the accomplishment key infrastructure projects.
Seek external support to cover additional financing needs until fiscal sustainability is attained
The strategy has key goals to achieve this economic turnaround. The key goals are:
Reducing the government budget deficit to below 8% of gross domestic product in the next three years
Achieving sustainable Real GDP growth of 7% by FY 2018/2019
Reducing inflation to 6-8%
Bringing unemployment rate below double digits
To reach this 7% target growth by 2018, Egypt needs investments worth $60bn over four to six years. With $35bn worth of projects being showcased at Egypt’s Economic Development Conference, Egyptian government officials see $12-$15bn worth of investments as a very possible outcome of the conference.
One has to be a true pessimist to ignore all the good signs coming out of the Egyptian economy. However solid execution is must for this turnaround to continue. With the right policies and execution in place, Egypt may just be able to balance the difficult formula, which is to restore economic stability all the same time while improving the standards of living for its people.
