The successful march of the Egyptian economy

Egypt has adopted a national programme for economic reform

Egypt has adopted a reform programme to accelerate growth and protect the poor. The projects aim to improve the lives of 60 million citizens, provide 900,000 jobs annually, and create new cities to accommodate 10 million people. Ahmad Abdel-Rahman explains.

Over the past eight years, Egypt has adopted a national programme for economic reform with the aim of advancing economic growth, reducing inflation, the deficit in the state budget, and the public debt.

Consequently, it has carried out several projects, one of them being the homeland project. This aims to improve the standard of living of nearly 60 million citizens living in Egypt's villages.

The economic reform programme includes measures related to monetary, fiscal, structural, protection and social support policies. Among these policies is the adoption of the value-added tax law, the unified tax procedures law, the new tax law, and the pension reform law. This is in addition to the Comprehensive Health Insurance Law, the implementation of the Civil Services Law, the rationalisation of energy subsidies, especially petroleum products, the issuance of the investment law, the reform of the bread and ration cards system, the adoption of the law on government contracts concluded by public authorities and the new customs law.

There is also the introduction of a new law for the development of medium, small and micro enterprises, the issuance of the unified finance law and amendments to the law on partnership with the private sector. Then there is the introduction of the automatic pricing mechanism for petroleum products, and the introduction of a hedging mechanism against the rise in the prices of petroleum products and food commodities.

Programme achievements

The economic reform programme has achieved macroeconomic stability and financial sustainability, which has helped the Egyptian economy to become more flexible and overcome the global health and economic crisis brought about by the corona pandemic in the fiscal years 2019/2020 and 2020/2021. The real GDP growth rate of 3.3 per cent in the fiscal year 2020/2021, and 3.6 per cent during the fiscal year 2019/20, reflects this flexibility. Egypt is one of the few countries in the world, and the only one in North Africa and the Middle East, to achieve a positive real growth rate throughout the two years of the corona pandemic.

Egypt was also able to achieve a primary surplus estimated to be 1.8 per cent and 1.46 per cent of GDP throughout the fiscal years 2019/2020 and 2020/2021. This was despite the increase in spending on the health and education sectors and the allocation of a stimulus financial package estimated to be EGP100 billion (USD 4 billion)

At the same time, Egypt has also reduced the debt of public budget agencies from 108 per cent of GDP in the 2016/2017 fiscal year to 91.2 percent of GDP in the 2020/2021 fiscal year. By doing so, the fiscal deficit will have reached 17 percent of GDP over three years, including the two years of the corona pandemic, and all the needs of the state, especially the health sector, will have been met.

New plans

Egypt aims to continue its economic reform programme to achieve a high and sustainable growth rate, so that all citizens will be able to live a comfortable life. This will require raising investment rates, and gradually reducing unemployment so that is reaches about 6 per cent in the medium term. It will do this by expanding the absorptive capacity of the Egyptian economy and will provide nearly 900,000 job opportunities annually in various economic sectors in fiscal years (2018/2019-2024/2025). This also requires maintaining an annual primary surplus of 2 per cent of GDP and reducing the total deficit in the state budget to less than 5 per cent of GDP. Construction of cities will continue so that urban communities will accommodate 10 million people.

There is also a need to expand the use of clean technology, especially waste recycling projects that are environmentally friendly and fall within the framework of the green economy.

In the coming years, Egypt will also, continue to reduce budget debt from 91.2 percent of GDP in June 2021 to about 82.5 percent of GDP by June 2025. It is expected that this gradual reduction in debt  will lead to a significant improvement in financial sustainability and raise Egypt's ability to deal with changes and challenges that the local and global economy may face in the future.

It is also expected that the decrease in debt will also contribute to increasing the competitiveness of the Egyptian economy. It will create an atmosphere that helps reduce inflation and interest rates, supports the increase in private sector investments and creates real and sustainable job opportunities for new entrants to the market.

The state also aims to restructure the public debt in favor of the medium and long term, reduce the cost of borrowing and reduce the risks of refinancing. Together, this will lead to a significant reduction in spending on interest payments, which represents about a third of public spending. Debt installments will also be reduced, which will help create financial capability. This will be directed towards spending on economic, societal and human development and will contribute to increasing development rates and creating real job opportunities, as well as increasing investment in human capital.