Egypt's economic growth rate is expected to reach 3.9 per cent in fiscal year 2016/2017, mainly driven by public investment and to some extent net exports, said the World Bank in its Middle East and North Africa (MENA) Economic Monitor released this week. While the expected growth rate lags behind the bank's estimated 4.3 per cent for last year, the rate is expected to accelerate to 4.6 per cent in 2018. The government of Prime Minister Sherif Ismail is targeting five per cent growth for the fiscal year starting in July, betting on LE646 billion of investment, 55 per cent of it to be provided by the private sector. Egypt has embarked on a wide range of mega-projects, including a new administrative capital, social housing projects, and a 1.5 million feddan reclamation scheme in addition to multiple projects to upgrade infrastructure. The actual economic growth rate registered in 2015/2016 was 4.3 per cent of GDP, down from 4.4 per cent in the previous fiscal year. Private investment is expected to “pick up only in the second half of the year supported by enhanced competitiveness following the depreciation of the currency and the gradual implementation of business climate reforms”, the World Bank said. The local currency has lost almost 50 per cent of its value since the devaluation in November, which was part of a wide-ranging reform programme that also includes a modified and more investor-friendly investment code. A new industrial licences law that facilitates the procedure for acquiring a licence for new factories was recently approved by parliament. Tourism is expected to steadily recover on the back of a weaker currency, with initial estimates putting the increase in the number of tourists in the first quarter of 2017 at 20 per cent over the previous year. The number of tourists visiting Egypt in 2016 declined to 5.3 million, compared to 9.3 million in 2015, on the back of security concerns following the downing of a Russian plane over Sinai in November 2015. Meanwhile, the slower growth in private consumption on the back of heated increases in prices could undermine the expected growth rates, according to the World Bank. Egypt's annual inflation rate hit a 30-year high in March at 30.9 per cent. The rate of the increases in prices, however, is projected to improve as a result of the implementation of monetary policies, especially after the one-off effects of depreciation, subsidy reforms, and the introduction of the new value-added tax (VAT) have dissipated, the report says. While March's annual urban consumer inflation figure was the highest since June 1986, when it reached 35.1 per cent on a yearly basis, urban inflation eased to two per cent this March from 2.6 per cent in February. The World Bank said in its report that efforts to improve the targeting of the food smart-card programme, currently used to protect the most vulnerable from price shocks and ensure a minimum level of food security, could provide an improved safety net. The country's fiscal deficit, the difference between state revenues and expenses, is expected to decline to 10.5 per cent of GDP compared to the nine to 9.5 per cent projected by the government. “With the implementation of the VAT, the expected increase in the VAT rate to 14 per cent from the current 13 per cent, and efforts to improve tax collection, revenues are expected to improve, while expenditures will continue to be contained,” the bank noted. The annual fiscal deficit last year increased to 12.1 per cent of GDP, up from 11 per cent the year before. However, according to the bank, the first half of 2016/2017 saw it decline to 5.4 per cent of GDP, down from 6.4 per cent in the same period last year. The improvement stemmed from tightened spending due to a decrease in subsidies and public wages as a percentage of GDP, it said. The report pointed to several risks ahead, topped by security risks that could adversely affect the recovery of the tourism sector, traditionally a main source of revenue and foreign currency. Last week saw two suicide bomb attacks on churches in Tanta and Alexandria. The Islamic State (IS) group claimed responsibility for the Palm Sunday attacks that killed 45 people. On the social front, the bank said resources from the fuel subsidy reforms to be allocated to social programmes could be lower during 2017/2018 than expected due to the currency depreciation. The government has promised to allocate more money to social welfare in the new budget, in addition to meeting constitutional requirements allocating eight per cent of total state expenditure to health and education. Social welfare programmes, including the Takaful and Karama programmes, will cost the state around LE200 billion in the new budget. Meanwhile, the Ministry of Petroleum has earmarked only LE110.148 billion for oil subsidies through the coming fiscal year. On Tuesday, the Al-Mal financial daily quoted Finance Minister Amr Al-Garhi as saying that allocations for social welfare spending would increase by 50 per cent next year to reach LE15 billion. Food subsidies would witness a 30 per cent increase due to a planned hike in the allocation of subsidies to smart-card holders from LE21 to LE27, he said.
