In a broadly encouraging sign regarding Egypt's commitment to economic reform, the International Monetary Fund (IMF) agreed last week to disburse the second tranche of $1.25 billion of the country's $12 billion loan. The decision came after the IMF had completed its first review of Egypt's economic reform programme. IMF Managing Director Christine Lagarde congratulated Egypt for its “success in pursuing its ambitious economic reform programme”. She said that the Egyptian government and Central Bank (CBE) had taken the right measures to rein in inflation, reduce the budget deficit, and set the economy on a path to stability and growth. Despite subsidy cuts resulting in unprecedented price hikes and a 30 per cent inflation rate, the government is pointing to improvements in the economy, saying that the economic reforms are paying off. Minister of Planning Hala Al-Said said that the third quarter of the 2016/2017 fiscal year had seen a significant increase in the growth rate to reach 4.3 per cent, compared to 3.6 per cent in the same quarter of 2015/2016. The growth was driven by the tourism, building and construction, transportation, and communication sectors, among others, Al-Said said. “The most important thing is that this growth was not driven by consumption, but by an increase in investment rates and positive net foreign trade,” Al-Said said during a meeting with journalists on Saturday. She said that investments had increased by 36 per cent in the third quarter and that the unemployment rate had fallen to 12 per cent from 12.7 per cent in the same quarter last year. “This proves that the growth was driven by an increase in investment,” she said. Al-Said added that indications showed that the fourth quarter was moving in the same positive direction, saying that the country's GDP growth rate would not fall below four per cent in 2016/2017. A smaller budget deficit is also expected, with Al-Said saying that the initial deficit for 2016/2017 would hover at 10.5 per cent of GDP, compared to 12.5 per cent in 2015/2016. After its first review, the IMF revised the estimates it made in November last year when Egypt signed the loan deal. It reduced its estimate for growth in 2017/2018 from 4.8 per cent to 4.5 per cent, in line with the government's estimates of 4.6 per cent. Meanwhile, the IMF expected inflation to fall to 10.3 per cent by the end of 2107/2018, down from its November's forecast of 11.1 per cent. It has also downgraded its estimate for total government debt to 87.7 per cent of GDP, compared to the previous forecast of 89.1 per cent, but it nearly doubled its estimate for government foreign debt to 19.1 per cent, compared to 8.9 per cent. Despite its negative impact on prices, the CBE's decision to float the Egyptian pound in November has had a positive effect on the macroeconomic front, according to a recent report from Arabia Monitor, a London-based research group. “Since Egypt floated its currency and hiked interest rates, foreign currency has returned into the banking system, and Egypt has succeeded in attracting large amounts of portfolio investment,” Florence Eid-Oakden, chief economist at Arabia Monitor, said in the report. Since the floatation, foreign investment in government securities had reached $5.7 billion, against pre-float levels of $100 million, the report showed. Other commentators have recently put the figure at $7 billion. Egypt's foreign reserves have also been increasing since the floatation. Boosted by two Eurobond offerings, the foreign reserves reached $31 billion in May, from $28.6 billion in April, the highest since March 2011 when they stood at $36 billion, the report said. It added that Egypt's equity market had also advanced, with the country's main EGX30 index increasing by 76 per cent year-on-year to 13,684 on 8 June, an all-time high. The EGX30 was at a one-year low of 8,524 on 11 November 2016. “The next big step is attracting more investment to Egypt. The new investment law ratified on 2 June is designed to lure foreign investors back,” Eid-Oakden said. Foreign direct investment in Egypt jumped 39 per cent in the first half of the current fiscal year to reach $4.3 billion, compared to $3.1 billion in the same period the previous year, the report showed. Egypt's economic reforms were also praised by international ratings agency Fitch, which said in a report last week that the country's new budget and lower electricity and fuel subsidies had demonstrated a continued commitment to fiscal consolidation and economic reform, supporting its sovereign credit profile. Despite these reports about improvements in the economic situation, however, improvements may not be felt on the ground, and many people are suffering from skyrocketing prices across the board as a result of the floatation and subsidy cuts. However, Al-Said said that no economic reforms could take place without a price to be paid, adding that people would see the fruit of the government's economic reform programme when they saw the jobs that would be created and other improvements. “People will feel the improvements quarter by quarter,” Al-Said said.
