Egypt’s economic reform programme has received a boost from the International Monetary Fund, which on Wednesday said that measures implemented by the government were spurring growth and starting to produce a “turnround”.
The IMF predicted growth would reach 3.8 per cent of gross domestic product in the fiscal year to end in June up from 2.2 per cent the year before.
Hany Kadry Dimian, Egypt’s finance minister, described the IMF’s report as “the message of confidence we have been waiting for”.
The fund’s endorsement provides a welcome boost to Cairo as it prepares to host a high-profile economic conference next month that the government hopes will attract billions in foreign investment.
Despite a low-level insurgency by Islamist militants and periodic clashes between police and anti-government protesters, businessmen and analysts report renewed investor interest in Egypt and a perception of declining political risk.
The IMF mission was the first of its kind since 2010 and was requested by the government of Abdel Fattah al-Sisi in a bid to shore up confidence in the economy ahead of the conference, which the authorities are publicising as the relaunch of Egypt as a destination for international investors after several years of unrest.
Political turmoil since the 2011 revolution stalled the country’s growth, reduced tourist numbers and caused investment flows to dry up. Unemployment increased to at least 13 per cent and fiscal deficits have been above 10 per cent of GDP.
Investment flows have yet to return in any significant volume, but the authorities hope that reforms enacted over the past year, along with planned improvements to the business climate and opportunities in energy and infrastructure will attract fresh funds from the Gulf and elsewhere.
Cairo slashed state spending on energy subsidies by a third last summer and has introduced new taxes. A value added tax is to be introduced later this year. The central bank has also allowed the value of the Egyptian pound to slide against the dollar. Since January 18, the pound has weakened to E£7.53 to the dollar, down from E£7.15, the rate maintained for the preceding six months.
Chris Jarvis, the head of the IMF mission, said Egypt remained vulnerable to many external risks but the biggest danger “was faltering in its resolve” to stick with reforms. He praised the devaluation of the pound as “a step in the right direction and said the country could achieve its aim of reaching a growth rate of 5 per cent over the medium term if it remained committed to its reform programme.
The fund said it expected fiscal consolidation to bring the budget deficit below 8 per cent of GDP by 2018/19, and to help reach a target inflation rate of 7 per cent in the medium term.
“With consistent implementation of policy plans in the coming years, staff projects that actual and potential growth could reach 5 per cent by 2018-19 due to structural reforms to raise investment and improved productivity,” said the IMF report. “If this materialises, unemployment could fall to 10 per cent.”
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