Economic Analysis - Fiscal Consolidation, But Outsized Risks To Debt Sustainability Remain In Place - MAR 2018


BMI View: Egypt ' s fiscal deficit will gradually narrow over the quarters ahead, with the pace of consolidation likely to pick up after the country ' s March presidential election s . The debt-to-GDP ratio will nevertheless remain elevated for the foreseeable future, making the country vulnerable to shifts in investor sentiment.

We expect the Egyptian government to continue its fiscal consolidation efforts over the years ahead, in line with the measures laid out in the 2016 USD12bn IMF loan arrangement. Consequently, and given our positive outlook for the country's economic growth, we forecast the fiscal deficit to narrow to 9.4% of GDP in FY2017/18 (starting July 1) and 7.8% in FY2018/19, from an estimated 10.9% in FY2017/18. This is only slightly larger than the IMF-stipulated targets of 9.2% and 7.4% for those two years, respectively. In turn, we believe the government will begin to reduce its public debt to GDP, marking a turn-around from the rapid build-up seen in the years following the 2011 Arab Spring. Given the high debt-to-GDP ratio and the gradual pace of reduction, however - we forecast debt-to-GDP at 94.1% in FY2017/18 and 88.1% in FY2018/19, from 103.3% in FY2016/17 - we note that instability risks will persist for many years, with the country set to remain highly vulnerable to drastic shifts in investor sentiment.

IMF-Stipulated Fiscal Consolidation To Progress

Steady Progress Ahead
Egypt - Budget & Primary Balances, % GDP
e/f = BMI estimate/forecast. Source: BMI, CBE

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