The International Monetary Fund has indicated that the increasing political tensions in the region are likely to cause added pressure to Egypt’s fiscal burden as the government increases spending on social areas, according to an Al-Masry Al-Youm report on a symposium organized by the Egyptian Research Center.
The IMF has highlighted three key challenges facing the Egyptian economy: rising prices of commodities, increasing domestic debt levels, widening unemployment rates.
In its daily note, Beltone Financial referred to its Dec. 23 economics research note where it had “indicated that growth in Egypt, going forward, will continue to remain below its potential pending the satisfaction of a number of conditions (including reforms) and elimination of a number of bottlenecks (including infrastructure) that hinder growth levels, many of which were highlighted by the IMF as indicated by this news report.
The recent increase in global food prices, which the IMF attributed to bad weather and increasing global food consumption levels, along with domestic factors, are likely to pressure food price inflation in Egypt, which it expects will grow, and add to Egypt’s fiscal burden, Beltone Financial cited the report in its daily note.
Rising prices of commodities is especially threatening to individuals in the lower income brackets. On education, the IMF has pointed out that Egypt was amongst the lowest ranked in the region, in terms of the quality of education, training and efficiency of the labor market, also warning about increasing unemployment levels amongst the youth.
““Food price inflation in Egypt is one of our main concerns, given Egypt’s demographic structure and social pressures, we do not believe it is sustainable at its current double-digit level,” Beltone said.
The IMF expects the number of unemployed in Egypt to increase from 2.3 million in 2008 to 7.1 million in 2020 should employment rates continue at their current pace. That said, the IMF stated that annual growth needs to reach 10 percent to absorb the growing labor population and this would take place through increased investments.
The level of domestic debt, according to the IMF, is also important in a country’s attractiveness to FDI. The IMF has also called on eliminating energy subsidies over the coming period, noting that currently petroleum subsidies do not reach the intended low-income end-target and continues to cover mainly the higher income brackets.
“As the government continues to reform and better target its subsidy system, we believe that more commitment needs to be in place, in addition to faster implementation of policies that aim at reducing inefficiencies in the domestic food markets, such as those linked to the food supply chain and distribution channels that are likely to be behind this unusual and sustained increase in domestic food prices,” Beltone concluded.
