According to the latest report by the Organisation for Economic Co-operation and Development (OECD), Egypt’s GDP is set to grow to 5.1 percent by the fiscal year 2025-2026. The report suggests the growth will be driven by growing consumption if inflation declines and fiscal support gradually withdraws. The report also underscores the importance of renewed reform efforts to navigate the current economic landscape.
Growth outlook
The OECD projects Egypt’s GDP growth to moderate to 3.2 percent in fiscal year 2023-2024, with a gradual increase by fiscal year 2025-2026. Despite expectations of consumption growth, challenges persist, including weak investment amid tight financing conditions and subdued export growth amidst regional tensions.
High domestic inflation, peaking at 40.4 percent in September 2023, has dampened consumption, weakened the currency, and hindered investment. However, inflation has begun a gradual descent to 31.2 percent in January 2024. Despite that decline, the OECD stresses the necessity of restrictive monetary policy until Egypt’s inflation reaches target levels. Hence, this is essential for bolstering consumer confidence and fostering sustainable growth.
Fiscal challenges
Egypt faces significant financing needs amidst a substantial budget deficit. The initial 2023-2024 budget aimed at increasing the primary budget surplus to 2.5 percent of the gross domestic product (GDP). However, the overall budget deficit will remain substantial at -7.5 percent due to high spending on interest payments.
Simultaneously, international market funding has been constrained since early 2022 due to heightened volatility in global financial markets, resulting in significant capital outflows. Therefore, the OECD stresses the importance of rebuilding investor trust in public finances to attract international capital and reduce debt service expenses in Egypt.
Read: UAE, Gulf economies to outpace global growth in 2024: Report
Promoting private sector vitality
The OECD calls for enhancing private sector activity and productivity through regulatory reforms and the divestment of state-owned enterprises. It also suggests reducing regulatory barriers and limiting the scope of state-owned enterprises. Hence, this would lower market distortions and strengthen fair competition.
Moreover, addressing rigid employment protection and lowering labor taxation is essential to foster job creation and reduce informality. The OECD states that Egypt must reduce high social security contribution rates as they are a major driver of informality, leaving workers without social protection.
Climate resilience
Egypt’s vulnerability to climate change necessitates accelerated mitigation and adaptation measures. Gradual reductions in energy subsidies and increased private investment in climate-related financing are recommended to promote sustainable development and resilience against environmental challenges.
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