Recent Developments & Prospects

Macroeconomic Policy

Fiscal Policy

Monetary Policy

Economic Cooperation, Regional Integration & Trade

Debt Policy

Economic & Political Governance

Private Sector

Financial Sector

Public Sector Management, Institutions & Reform

Natural Resource Management & Environment

Political Context

Social Context & Human Development

Building Human Resources

Poverty Reduction, Social Protection & Labour

Gender Equality

Thematic analysis: Structural transformation and natural resources

Authors: Prajesh Bhakta, Assitan Diarra-Thioune, Inji Amr

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  • The economic outlook for 2015 is cautiously optimistic, with the GDP growth rate projected at 3.8% in 2014/15 in the wake of important ongoing reforms and anticipation of parliamentary elections, which is the final stage of the political roadmap.
  • The successful outcome of the March Egypt Economic Development Conference secured over USD 60 billion worth of investments, loan agreements and grants and reinforced the government’s commitment to continue the structural reforms and promote inclusive growth and restore back investor confidence.
  •  Economic activity, policy making and development programmes are concentrated in Cairo and a few major cities, which perpetuates spatial disparities.

The economic outlook since the July 2014 Presidential election looks optimistic. GDP growth in the fourth quarter of the 2013/14 Fiscal Year (FY) was 3.7% compared to 1.5% a year earlier. GDP is expected to grow by 3.8% in FY 2014/15 and 4.3% the following year, compared to 2.2% in 2013/14. This continuing growth will be reinforced by prospects of political stability, initiation of the Suez Canal expansion and improved business sentiment resulting from major reforms. Yet economic recovery remains fragile due to: i) high inflation rate estimated at 10.1% in FY 2013/14; ii) a budget balance still projected to show a deficit of 11% of GDP in FY 2014/15; iii) the country’s high outstanding public debt to GDP ratio, up to 97% in June 2014 from 94% a year earlier; and iv) a rising unemployment rate reaching 13.3% in 2013 from 9% in June 2010. The economic recovery will depend on continued reform efforts. The parliamentary elections have been delayed but the government is committed to complete this last step of the political roadmap.

Growth is being driven by the manufacturing sector, despite energy shortages and changes to the energy-subsidy scheme. The key development challenges facing the government will be: reducing high inflation, bringing down youth unemployment, improving energy management, dealing with a structural fiscal deficit and resolving other public debt issues that have not been successfully tackled despite an increase of the fiscal revenue from a widened tax base and subsidy reforms. Meanwhile, it is imperative to ensure that subsidy reforms do not hurt the lower-income segments of the population but are better targeted to ensure greater social justice.

Challenges at the macroeconomic level are also likely to affect spatial inclusion. Economic and social development is highly concentrated in Cairo and Alexandria, as well as in the Canal governorates (Ismailia, Port Said and Suez), which are the main business and residential hubs. Rural Upper Egypt, however, is deprived. The government is taking steps to integrate remote areas like the Sinai Peninsula, while promoting investment and poverty alleviation in the Nile Delta and Upper Egypt through projects such as the development of the Golden Triangle in Upper Egypt. Internal migration is low in Egypt and is directed towards the Canal governorates and Cairo. The former are likely to remain attractive for internal migration; however, with the implementation of the Suez Canal Area Development Project, there are likely to be poles of growth around the expansion of existing ports and new industrial zones. In addition to the existing organic clusters mainly in Lower Egypt, the government is aiming at creating new non-organic clusters following the Smart Village model in Cairo.

Table 1: Macroeconomic indicators

Real GDP growth2.
Real GDP per capita growth0.
CPI inflation6.910.110.410.1
Budget balance % GDP-13.7-12.8-11-8.5
Current account balance % GDP-2.4-0.8-3.4-4.3

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.