Egypt is making significant strides in stabilizing its economy, but experts agree that deeper structural reforms are still essential for long-term growth.
The International Monetary Fund (IMF) recently completed the fourth review of Egypt’s Extended Fund Facility (EFF) loan program, releasing $1.2 billion, bringing the total withdrawals under the $8 billion loan to $3.207 billion. This funding is crucial in Egypt’s efforts to stabilize its economy amid global economic challenges.
Jean-Michel Saliba, Head of EEMEA Economics at Bank of America, highlighted to Business Monthly the importance of the disbursement, stating, “The $1.2 billion linked to the fourth review approval will help bolster Egypt’s external financing in the face of global economic challenges.” Alongside the EFF disbursement, the IMF also approved Egypt’s access to $1.3 billion from its Resilience and Sustainability Facility (RSF), which is part of the broader loan program running through 2026.
Despite these positive signs, including a decrease in the debt-to-GDP ratio and stable foreign exchange reserves, Egypt continues to face challenges, particularly in inflation and fiscal consolidation. Ivanna Vladkova Hollar, IMF Mission Chief for Egypt, projected inflation to reach 16.6% by the end of FY2024/2025, with headline inflation expected to hover around 15% year-on-year due to cyclical factors and domestic price adjustments. However, Hollar noted, “Since March 2024, the authorities have made considerable progress in stabilizing the economy, despite facing persistent external shocks, including regional conflicts and trade disruptions in the Red Sea.”
Key drivers for the future
Looking ahead, the private sector is seen as a crucial driver of Egypt’s future economic growth. Rania Al-Mashat, Egypt’s Minister of Planning, highlighted during the American Chamber of Commerce in Egypt’s Annual Iftar on March 18 that the reduction in public sector investments has created room for more private sector participation, with 60% of investments now coming from private sources. “The retrenchment in public investment is actually allowing more investments from the private sector. We have 60% from private investments,” she explained. She also pointed to the growing fintech sector, which is attracting substantial venture capital investments. “When you look at the top destinations for VC financing, Egypt comes at the top of the economy… In terms of fintech and startups, we are the second in the Middle East and North Africa for strong fintech companies,” Al-Mashat said.
However, experts caution that despite moderating inflation, the operating environment remains challenging. Nashwa Saleh, Associate Professor at Kingston University, shared her insights with Business Monthly, “It will make it easier to price the costs of inputs… but the operating environment will still remain challenging with double-digit inflation rates despite recent moderation” she stated.
The path forward
To ensure long-term stability, experts stress the need for structural reforms in fiscal policy, inflation targeting, and exchange rate policies. Hollar emphasized that transforming monetary policy through inflation targeting and adopting a flexible exchange rate will be crucial to sustaining Egypt’s economic recovery. “Transforming monetary and exchange rate policy through the implementation of inflation targeting in the context of a flexible exchange rate regime will be very important to sustain this reform over time,” she explained. Expanding the tax base and improving compliance will also be vital for fiscal health.
Saliba reinforced that maintaining tight monetary policies, exchange rate flexibility, fiscal consolidation, and privatization are crucial pillars for macroeconomic stability. “These are important pillars for maintaining macroeconomic stability,” he noted.
Saleh identified three key reforms that could drive Egypt’s economic future: privatization, investments in the technology sector, and institutional reforms to boost competition. “Three key reforms in my view are a robust privatization program, shifting infrastructure investments towards enabling the growth of the technology sector, rather than cement-linked infrastructure,” she stated. Additionally, Saleh anticipated that the Central Bank of Egypt (CBE) would continue to adjust its approach to inflation targets. “Given the significant increase in global risk factors, a prudent approach would allow for some easing of rates by the CBE,” she said.
A cautiously optimistic outlook
Despite significant challenges such as inflation, fiscal constraints, and the ongoing need for structural reforms, there are encouraging signs of stabilization in Egypt’s economy. The IMF’s financial support through disbursements from both the EFF and RSF provides essential funding for the country’s recovery. Moreover, Egypt’s shift toward a more flexible economic structure, coupled with growing private sector investment and green reforms, presents a cautiously optimistic outlook for the future.
As experts have noted, deep structural reforms remain necessary to unlock Egypt’s full growth potential and strengthen resilience against future economic shocks.
