The Institute of International Finance (IIF)’s recent report showed that Egypt’s economy could record a real growth of 3.3 percent in the 2023-2024 fiscal year. This is compared to the 3.8 percent growth it posted in the previous fiscal year.
The institute stated that growing inflation, foreign currency shortages, and commodity supply bottlenecks could lead to weak private-sector consumption and export decline.
Decline in exports
The report suggested that Egypt’s hydrocarbon exports could decline in the fiscal year 2023-2024. This is due to export restrictions during the summer months, which were imposed to meet a strong domestic demand for energy. Moreover, tensions in the Middle East affected imports of Israeli gas, which also had an impact on Egypt’s re-exports.
The report added that a decline in hydrocarbon exports, service sector revenues, and a slight improvement in imports could increase Egypt’s current account deficit to 3.2 percent of GDP in the same fiscal year.
Additionally, the IFF indicated that the financing gap in Egypt could reach $7 billion. This could be financed mainly through foreign direct investments and official cash flows.
Egyptian currency
Apart from noting movements in the country’s export scene, the IFF also shared that the International Monetary Fund (IMF) program for Egypt could resume at the beginning of next year, after the end of the presidential elections. Another major devaluation of the currency may follow, prompting Egypt to move to a flexible currency exchange rate.
This development could also pave the way for the state’s privatization plans. These plans could generate $5 billion during the current fiscal year. Privatization will also allow Egypt to obtain loans from its partners in the Gulf Cooperation Council (GCC).
Read: Egypt’s foreign reserves reach $35.173 bn by end of November
Cautious growth
Emphasizing cautious growth, the IFF also warned about the repercussions of failing to reach an agreement with the IMF. There could also be continued tensions in the Middle East. The report noted that all this may widen Egypt’s current account deficit. In addition, these scenarios may also affect the country’s ability to obtain sufficient external financing. Subsequently, these will cause foreign exchange reserves to decline to critical levels.
In this case, Egypt could move forward by imposing additional restrictions on the import of goods as it did in the last fiscal year. It could also rely on proceeds from implementing small-scale privatization operations, bilateral financing agreements, and market issuances.
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