Egypt's economic reform programme seems to be on the right track with indicators improving and international organisations giving a thumbs up for the better than expected results. The latest IMF World Economic Outlook, an annual report prepared by the fund analysing global economic prospects, came out last week with bullish expectations for Egypt. The report expected “economic growth to reach 5.5 per cent in 2019 and six per cent in 2023 compared to 4.2 per cent accomplished in the last fiscal year thanks to the recovery in tourism, rising natural gas production and improved confidence in the economy due to the government's implementation of the IMF-prescribed reforms.” This is double the average pace of growth among our neighbours in the MENA region, where the IMF sees average growth coming in at two per cent this year and 2.5 per cent in 2019. In 2016 the government signed a deal with the IMF for a $12 billion dollar loan on instalments. The deal came with recommendations for a handful of reforms, including devaluation of the pound, cutting subsidies and imposing new taxes. The reforms, while creating inflationary pressures, resulted in stabilising the currency, increasing foreign reserves and improving most macroeconomic indicators, growth rate included. This growth, according to the IMF report, will deliver more job opportunities so that unemployment falls to 9.9 per cent next year from 10.9 per cent this year and 12.2 per cent in 2017. While the main concerns of economists are now rising inflation and the effect of emerging markets outflows on the economy, the report authors have reasons to calm these fears. Inflation will cool to 14 per cent in 2019, down from a high north of 30 per cent last year, according to the report. Annual headline inflation jumped to 16 per cent in September, up from 14.2 per cent in August. The hike came on the back of continued increase in prices of fruit and vegetables and increased household expenses during the back-to-school season. Inflation rates spirally increased following the currency devaluation and the reduction in fuel subsidies to reach a peak of 35 per cent in July 2017. It started to slowdown in the second half of 2017, but the new wave of fuel, electricity and water subsidies cuts earlier this year pushed it up again. As for the effect of outflows driven by the emerging markets crisis, mainly triggered by the strengthening in the dollar and the Federal Reserve increasing US interest rates, the report notes: “Healthy foreign reserves and a flexible exchange rate leave the economy well-positioned to manage any acceleration in outflows.” Egypt's net foreign reserves rose to $44.45 billion at the end of September. Reserves have been on the rise since the devaluation, before which they deteriorated below $15 billion. The improvement in reserves has been built up by tourism and a healthier balance of payments. The number of tourists visiting Egypt from both traditional markets in Western Europe and emerging markets in Central and Eastern Europe, the Middle East and Asia has rebounded making Egypt the region's fastest-growing tourism destination in 2017, according to the UN World Tourism Organisation. Tourist arrivals to Egypt showed a strong resurgence in 2017, reaching 8.5 million, up from 5.2 million a year earlier. Moreover, in the first half of 2018, tourist arrivals grew 41 per cent to five million visitors, compared to 3.5 million visitors during the same period last year. Tourism revenues increased 77 per cent to around $4.8 billion during in the same period compared to $2.71 billion in the first half of 2017. The sector is expected to reach a target revenue of $9 billion by the end of 2018, with an increase in traffic incoming from Western Europe, Italy, Germany and Ukraine. The balance of payments, reflecting Egypt's transactions with the rest of the world, including trade, foreign investment, payments for purchases as well as loans disbursed, showed an improvement as well, recording a surplus of $12.8 billion in 2017/2018. But still, the Egyptians are muddling through rising expenses and fears that another round of subsidies cuts is around the corner. Many campaigns to boycott commodities with exaggerated price increases were launched during the last three months. The government needs to absorb these concerns by extending social safety nets and monitoring markets to control price increases.
