The World Bank has lowered its growth forecast for Egypt to 3.8% in the fiscal year (FY) 2022/2023, 0.2% less than its previous projection in June FY 2023, according to the Global Economic Prospects report for January 2024.
The report also said that the country’s growth is expected to decline to 3.5% in FY 2024, 0.5% lower than the June 2023 estimate, and to 3.9% in FY 2025, 0.8% lower than the June 2023 forecast.
The report highlighted that Egypt’s GDP grew by 6.6% in FY 2022, compared to 3.3% in FY 2021. “As the world nears the midpoint of what was intended to be a transformative decade for development, the global economy is set to rack up a sorry record by the end of 2024—the slowest half-decade of GDP growth in 30 years,” the report stated.
The report added that the global trade growth in 2024 is expected to be only half the average in the decade before the pandemic. Meanwhile, borrowing costs for developing economies—especially those with poor credit ratings—are likely to remain high with global interest rates stuck at four-decade highs in inflation-adjusted terms.
“Global growth is projected to slow for the third year in a row—from 2.6% last year to 2.4% in 2024, almost three-quarters of a percentage point below the average of the 2010s. Developing economies are projected to grow just 3.9%, more than one percentage point below the average of the previous decade. After a disappointing performance last year, low-income countries should grow 5.5%, weaker than previously expected. By the end of 2024, people in about one out of every four developing countries and about 40% of low-income countries will still be poorer than they were on the eve of the COVID pandemic in 2019. In advanced economies, meanwhile, growth is set to slow to 1.2% this year from 1.5% in 2023,” the report read.
The report mentioned that to tackle climate change and achieve other key global development goals by 2030, developing countries will need to deliver a formidable increase in investment—about $2.4trn per year. Without a comprehensive policy package, prospects for such an increase are not bright. Per capita investment growth in developing economies between 2023 and 2024 is expected to average only 3.7%, just over half the rate of the previous two decades, the bank disclosed.
The report also identified what two-thirds of developing countries—commodity exporters specifically—can do to avoid boom-and-bust cycles. The report found that governments in these countries often adopt fiscal policies that intensify booms and busts. When increases in commodity prices boost growth by 1%, fiscal policy tends to overheat the economy. In general, in good times, fiscal policy tends to overheat the economy. In bad times, it deepens the slump. This “procyclicality” is 30% stronger in commodity-exporting developing economies than it is in other developing economies. Fiscal policies also tend to be 40% more volatile in these economies than in other developing economies.
The report noted that the instability associated with higher procyclicality and volatility of fiscal policy produces a chronic drag on the growth prospects of commodity-exporting developing economies. The report suggested that the drag can be reduced by putting in place a fiscal framework that helps discipline government spending, by adopting flexible exchange-rate regimes, and by avoiding restrictions on the movement of international capital. On average, these policy measures could help commodity exporters in developing economies boost their per capita GDP growth by as much as 1% every four or five years. The report also recommended that countries establish sovereign wealth funds and other rainy-day funds that can be deployed quickly in an emergency.
