Egypt’s Economic Growth Expected to Gradually Improve as IMF Measures Take Hold
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Sulaiman - . October 24, 2024
- . Update: October 24, 2024 9:19 pm
With predicted rise reaching 4.0% by the end of June 2025, Egypt’s economy is geared for a small but consistent comeback in the coming years. This positive projection fits the country still negotiating the consequences of advised austerity policies proposed by the International Monetary Fund (IMF). Although the speed of recovery is still modest, a recent Reuters survey taken between October 9 and 23 reveals 13 economists’ opinions point to a rising trend in the economic path of the nation.
Rising out of the financial crisis, Egypt has struggled greatly in the previous few years resulting from both regional and international events. From the Reuters poll, Egypt’s median estimate of GDP is for it to rise steadily then even more to 5.3% by 2026/27 from 4.7% in the fiscal year 2025/26. The nation’s growth rate dropped sharply in 2023/24 from 3.8% a year earlier to 2.4%. Mostly responsible for this drop is Egypt’s main source of income, which the financial crisis and aftermath of the Gaza conflict have hampered: especially from the Suez Canal and the tourism industry. Egypt’s economic strength has historically come mostly from these industries; nonetheless, the pressure on them helps to clarify the poor development in recent years.
Egypt’s economic situation clearly shows the violence in Gaza, which has convoluted trade channels and generated geopolitical uncertainty. Already recovering from the COVID-19 epidemic, tourism suffered more when war in the area blocked travel to Egypt, a popular vacation spot for West and adjacent countries alike. Another element holding down economic growth was the Suez Canal, a crucial artery for world trade with limited flow as businesses diverted to avoid expected security concerns. Still, as these impacts diminish over time, analysts hope that as regional tensions decline and the economy might recover more forcefully in the future years.
Grounding for Growth: Financial Restructures and IMF Program
Egypt’s economic recovery could be mostly explained by its agreement with the IMF on a thorough program for financial restructuring set for March 2024. Priced at $8 billion, this reform package was crucial in stabilizing the national economy and laying a basis for more sustainable development. Aiming at much-needed foreign investment, Egypt’s main selling of development rights for real estate along its Mediterranean coast to the sovereign fund ADQ for $24 billion followed.
Tight austerity policies were meant to lower the debt-to— GDP ratio and regulate the budget deficit in addition to IMF financial support. Though austere with the public, right now these tactics are starting to pay off. “Economic prospects in Egypt are improving, but at a slow pace,” Capital Economics’ James Swanston said. Swanston pointed out that even if economic policy will remain austere, the advantages of the IMF’s program were amply shown. Egypt’s slow economic recovery marks a change from years of great debt and outside shocks leaving her nation vulnerable to both regional and global challenges.
Furthermore mandated by the IMF agreement was Egypt’s overhaul of its subsidy policies, especially for energy, which had long been a drain on the national budget. Although divisive locally, the government has gradually cut gasoline subsidies to help to close the budget deficit. Long-term economic development depends on the government’s focus on enhancing the business environment by means of regulatory simplification and increase of foreign direct investment.
Primary problems are inflation and devaluation of money
Inflation is one of the main issues Egypt’s economy deals with; rising costs reduce the quality of living for millions of people. According to the Reuters poll, annual headline inflation is probably going to steadily reduce to 20.4% in the fiscal year 2024/25 then drastically more to 11.4% in 2025/26. Although inflation rose to 26.4% in September 2024—it still falls short of the record-high levels of 38.0% noted in September 2023.
Considered as evidence of the slight economic stability even if problems still exist is the continuous declining inflation. While the pound is losing value, experts have noted that even now inflationary factors have a major influence on food and energy prices. Still, there is hope that by 2025 inflation will be far lower, allowing more measures favorable for development.
Accompanied for years with the US dollar, the Egyptian pound has also seen substantial devaluation. In March 2024 the central bank changed its fixed rate of 30.85 to the dollar; the IMF reform effort let the pound free to float. Forecasts for economies show that by the end of June 2025 the value will drop far more and collapse 52.0 by mid-2026. Right now, I sell 48.8 per dollar. Restoring competitiveness calls for this weakness, which raises import prices and so aggravates inflation even if it is vital. The central bank has tightened monetary policy to attempt to stabilize the currency; yet,
Interest Rates for Monetary Policy
The current high overnight lending rates of the central bank expose attempts to lower inflation. From 22.25% by June 2025 to 14.25% by mid-2026 the Reuters poll reveals a slow declining trend. Reduced interest rates will benefit the private sector much needed and increase economic activity for households and companies able to afford borrowing. While the banking industry is keeping stability, observers think Egypt’s small monetary policy relaxation would allow a more balanced approach of development.
Egypt’s private sector, which has suffered considerably from the plague, inflation, and changes in exchange values, particularly depends on interest rate decreases. Reducing borrowing will enable companies to increase overall recovery, provide employment, and make investment in expansion. Swanston noted, however, that even if inflation is dropping, it could take until the first quarter of 2025 for meaningful interest rate reductions to materialize, so the short-term recovery could still be erratic.
Long-Term Vision: Prospective IMF Development
Egypt’s GDP is expected to expand yearly at 4.1% based on its most recent World Economic Outlook 4.1%. This is consistent with the Reuters poll’s forecasts and indicates Egypt is on route for recovery even with current obstacles. Particularly with regard to enhancing the business environment and drawing foreign investment, the successful application of economic reforms will determine the long-term development potential of the nation.
Egypt is diversifying its economy and relies less on foreign loans, hence it hopes that next year will show more sustainability. Under structural adjustments meant to increase productivity and competitiveness, key industries including tourism, manufacturing, and real estate should push this comeback under support.
Although Egypt’s economy still has a difficult road ahead, the policies carried out under the IMF program provide a long-term development framework. Egypt is most likely to come out of this stage of economic crisis with a more resilient and varied economy since interest rates are ready to decline and large companies show signs of resurrection while inflation is continuously declining. Egypt’s future economic performance would be much influenced by better world conditions as well as by the government’s ongoing dedication to change.
