After being hit by social unrest and violence in 2011, Egypt’s economy is getting back on track, thanks to improved political stability, economic reforms and foreign investments, said Coface Group, a global credit insurance firm.
The authorities recently announced a real growth rate of 4.1% for 2014/2015 (the fiscal year running from July to June), compared to 2.2% for 2013/2014–which in turn was slightly up from the average growth of 2% between 2011 and 2013, NewsNow reported.
These latest results have been driven by growth in manufacturing, higher tourism revenues (after a decline following the unrest) and a favorable base effect. On the demand side, the main growth driver was private consumption. Coface estimates that growth will accelerate to 4.4% for 2015/2016.
Although growth in public and private consumption should continue, its pace will remain subdued, due to high unemployment and subsidy reforms aimed at reducing the budget deficit, says Coface.
Despite the improvement in Egypt’s fiscal situation, the budget deficit remains well above 10% of GDP. In addition, Egypt is still suffering from a wide external gap, weak infrastructure, microeconomic distortions and low competitiveness.
In the 2014/2015 fiscal year, the current account deficit jumped to $12.2 billion, up from $2.7 billion the year before, mainly due to the enlarged trade deficit. If oil prices remain low, this may cause a fall in FDI, grants and remittances from Persian Gulf Arab countries, which are amongst the biggest contributors to Egypt’s growth. This would restrict the funds for much-needed investments in Egypt’s infrastructure.
