Egypt's public debt is expected to be sustainable, but not with a high probability. Its level is high and gross financing needs are large, the International Monetary Fund (IMF) said in its report on Egypt issued late Tuesday. While the impact on economic activity of the coronavirus increased risks, several factors, including the high share of domestic currency debt issued locally and held by domestic financial institutions, retention of credit ratings by major ratings agencies with a stable outlook since the crisis started, and sizeable buffers coming into the current crisis, contributed to alleviate such risks, according to the report. The report also said that while the Covid-19 crisis will lead to a higher public debt than previously projected in 2019/2020 and 2020/2021, the primary surplus is expected to return to two percent of GDP from 2021/2022 and public debt is projected to resume its downward trajectory. Meanwhile, Covid-19 crisis has had a significant and immediate negative impact on Egypt's economy, creating an urgent balance of payments need, according to the report. Real GDP growth is expected to decline from an average of 5.5 percent in the financial year 2017/2018 and the financial year 2018/2019 to 2.8 percent in the financial year 2020/2021, according to the report. Additionally, Egypt's growth is projected to recover to 5.5 percent over the medium term. Average inflation is expected to increase from about six percent in the financial year 2019/2020 to nine percent in 2020/2021 and decline to seven percent in the medium term. Effective interest rates on general government debt are projected to decline, reflecting the decline in inflation forecasts. Regarding Egypt's financing gap, the report estimated it at $14 billion during the financial year 2019/2020 and 2020/2021.
