- The economic outlook for 2017 remains cautiously optimistic largely based on the government’s ability to maintain the policy and structural reform agenda as well as successfully implement the sustainable development strategy.
- Assuming economic policy and structural reform implementation, growth is expected to accelerate as confidence returns and investment increases, although some domestic issues and global economic headwinds will remain challenges.
- Overall, Egypt can reverse the major and long-standing trend of low and non-inclusive growth along with weak employment prospects on the basis of the potential of the industrial and entrepreneurial sectors.
The formal “political road map” has been completed and attention is now focused on management of the reform program and how this will support growth in 2017 and beyond. With foreign exchange now more readily available after the Central Bank of Egypt (CBE) liberalized the exchange rate in November 2016, the outlook for 2017 is more optimistic. Assuming reforms continue to be implemented, growth should pick up slightly because of positive developments in the gas, manufacturing and real estate sectors, alongside recovery in the tourism sector from recent security-related issues. However, managing to contain the large fiscal and current account deficits in an environment of high inflation will be a challenge in the remainder of 2017 and beyond.
Success in stabilizing the economy and boosting growth will be demonstrated by lowering the fiscal deficit while: increasing pro-poor spending; managing price stability in a context of exchange rate flexibility; increasing employment; enhancing the business environment; strengthening security; and improving social justice. Fiscal consolidation efforts will be continued through the 2017/18 budget supported by expenditure enhancements contained in the Civil Service Law (approved in early October 2016), and revenue strengthening provided via the introduction of the VAT law in mid-2016. Other revenue- and expenditure-management tools will also be utilized, such as the August 2016 tax disputes resolution law, and there will be further efforts to reduce energy subsidies with savings directed towards social safety nets. A new investment law is under discussion in parliament, which should help strengthen the business environment, support the private sector and boost employment. With the exchange rate now liberalized, the CBE will be able to strike a better balance between curbing inflationary pressures and boosting growth without simultaneously having to focus on keeping the exchange rate steady.
The economy is relatively well diversified but despite large-scale industrialization, investment has not delivered a vibrant economy with high employment. The reforms are designed to help improve productivity and efficiency in order to boost employment and move away from the “informality trap”. Yet increased industrialization and entrepreneurship depends not only on a strong and supportive policy environment, but also on access to more natural resources, capital, improved technology and higher skilled labor.