A slow implementation of new projects and security concerns prompted FocusEconomics consultancy firm to reduce its GDP growth forecast for Egypt in the current fiscal year (FY) 2015/2016 to 3.6%, down 0.2 points from its prediction in December.
For FY 2016/2017, GDP growth was expected to register 4.1%, according to the report. FocusEconomics economists expect inflation to average 9.8% in 2016, and foresee it slowing down to 9.4% in calendar year 2017.
In December, consumer prices fell 0.1% from the previous month, which followed the 0.3% decrease recorded in November. According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), the decrease was mainly driven by lower prices for food and non-alcoholic beverages.
According to the report, the government has been working to combat rising prices, particularly regarding food. Since November, it has listed goods that would be subject to price controls and has imposed quotas on imported wheat in an effort to reign in food prices and stem the outflow of foreign exchange.
The report furthered the inflation stabilised at November’s 11.1% in December and a shortage of foreign currency is driving up the cost of imported goods, including food. Meanwhile, the annual average inflation inched up from 10.3% in November to 10.4% in December.
Core inflation, which excludes volatile items such as fresh fruit and vegetables, came in at 7.2% in December, which was lower than the 7.4% tallied in November.
FocusEconomics economists also expect the overnight deposit rate to end 2016 at 9.30%. For 2017, panellists see the overnight deposit rate ending the year at 9.58%.
At its monetary policy meeting on 24 December, the Central Bank of Egypt (CBE) decided to hike the overnight deposit rate to 9.25% from 8.75%, marking the first increase in over a year.
CBE also increased the overnight lending rate and the rate of CBE’s main operation by 50 basis points each. “Concerns over strong inflationary pressures were cited as the driving factor behind CBE’s decision. However a general capital flight out of emerging economies likely also influenced the bank’s decision,” the report said.
“Inflation has been obstinately high in Egypt, thanks to increased non-food prices but it is not the only area of concern for the Egyptian economy,” according to the report. The high government debt levels, current account imbalances, and the need for structural reforms have prompted CBE to coordinate with the government and draw up a plan that address such issues.
“Looking ahead, the challenge for the bank will not only be moderating inflation but also cooperating with the government in order in improving public finances,” the report said. For FY 2015/2016, the government is expecting a 5% growth of gross domestic product (GDP).
The Ministry of Finance estimated the targeted total deficit in the state budget for FY 2015/2016 will be EGP 251bn, which represents 8.9% of GDP instead of EGP 281bn or 9.9% in the first draft.
The general revenues of the new FY budget are expected to grow by 28%, amounting to EGP 622.2bn compared to EGP 486bn for the current fiscal year.
The total expenditures amounted to EGP 864bn with an increase rate of 17.4%, while expenditure on employees’ wages and compensation and debt services, grants and social benefits amounted to 80.2% of expenses.
The Ministry of Finance pointed out that it will reprioritise its spending towards the improvement of general services. Approximately 50% of government spending will be allocated to support programmes that seek “direct social protection”. Volumes of money allocated to cash subsidies, healthcare, and pensions have all increased, the ministry clarified.
