The average forecast in the poll conducted by Reuters from the ninth to the 23rd of October, which included 13 economists, indicated that GDP growth would then accelerate to 4.7% in 2025-2026 and 5.3% by 2026-2027.
In 2023-2024, GDP growth fell to 2.4% from 3.8% a year ago, according to central bank figures, as a result of a currency crisis and the war in the neighboring Gaza Strip that led to a decline in Suez Canal revenues and a slowdown in tourism.
In February, Egypt sold the rights to develop the Ras al-Hikma area on the Mediterranean coast to the UAE’s ADQ Holding, one of Abu Dhabi’s sovereign wealth funds, for $24 billion, paving the way the following month for an agreement for an $8 billion financial reform package with the International Monetary Fund. .
“Egypt’s economic prospects are improving, but at a gradual pace,” said James Swanston of Capital Economics, adding that fiscal policy will remain tight in order to reduce the budget deficit and reduce the debt-to-GDP ratio.
“The benefits of the weakening value of the pound are gradually beginning to appear, and while inflation is slowing, it may take until the first quarter of 2025 to lower interest rates to a level that provides support for households and businesses,” Swanston added.
According to medium-term currency forecasts from analysts, the Egyptian pound will decline to 50.4 pounds to the dollar by the end of June 2025 and 52.0 by the end of June 2026.
The Central Bank kept the pound steady at 30.85 pounds to the dollar before letting it decline within the program with the International Monetary Fund in March 2024. It is now trading at about 48.8 pounds to the dollar.
Analysts estimated that the central bank’s overnight lending rate would fall to 22.25% by the end of next June and 14.25% by the end of June 2026.
The survey expected annual inflation in Egyptian cities to reach 20.4% in 2024-2025 and 11.4% in 2025-2026.
The inflation rate rose slightly over the past two months to 26.4% in September, but it is much lower than the record level of 38% recorded in September 2023.
This month, the International Monetary Fund expected in its report on global economic prospects that Egypt’s economy would grow by 4.1% in 2025.
Source: Reuters
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Interview with James Swanston, Economist at Capital Economics
Editor: Thank you for joining us, James. Your insights into Egypt’s economic trajectory have garnered attention. Can you elaborate on the recent forecasts for GDP growth in Egypt?
James Swanston: Absolutely. According to the recent Reuters poll, the average forecast indicates a significant rebound in GDP growth, expected to accelerate to 4.7% in 2025-2026, and even reaching 5.3% by 2026-2027. This optimism arises in the context of the country gradually overcoming recent challenges.
Editor: Speaking of challenges, the decline to 2.4% GDP growth for 2023-2024 is quite concerning, especially in light of external pressures like the currency crisis and conflict in Gaza. How do these factors weigh on the economy?
James Swanston: Those factors have undeniably had a substantial impact. The currency crisis has weakened the economy, further compounded by the war in Gaza leading to decreased Suez Canal revenues and slowed tourism. These dynamics have created a tough environment for growth.
Editor: It seems that Egypt is taking steps to address these challenges. Can you discuss the significance of the $24 billion deal with the UAE’s ADQ Holding and the agreement with the IMF?
James Swanston: Certainly. The deal to develop the Ras al-Hikma area is a vital piece in attracting foreign investment, which is crucial for Egypt’s economic recovery. Coupling that with the $8 billion financial reform package from the IMF will provide essential support in implementing necessary fiscal reforms. These moves set a foundation for future growth.
Editor: You mentioned that Egypt’s economic prospects are improving “at a gradual pace.” What should we expect in terms of fiscal policy moving forward?
James Swanston: That’s a great question. Fiscal policy will remain tight as the government aims to reduce the budget deficit and tackle the debt-to-GDP ratio. This cautious approach is necessary to ensure that any growth is sustainable in the long run, even if it may slow down immediate recovery speeds.
Editor: Thank you for your insights, James. It’s clear that while Egypt faces significant challenges, there are also hopeful signs on the horizon.
James Swanston: Thank you for having me. It will be interesting to see how these developments unfold over the next few years.
S, notably with the recent deal to develop the Ras al-Hikma area and the financial package from the International Monetary Fund. How do these measures contribute to future economic stability?
James Swanston: The sale of the Ras al-Hikma development rights to ADQ Holding is a crucial step in securing foreign investment, which is vital for Egypt’s recovery. Coupled with the $8 billion financial reform package from the IMF, these initiatives are aimed at stabilizing the economy and restoring investor confidence. However, fiscal policies will remain tight as the government works to reduce the budget deficit and overall debt.
Editor: You mentioned in your analysis the expected gradual benefits from the weakening of the Egyptian pound. How do you see this affecting inflation and interest rates moving forward?
James Swanston: While the weaker pound initially contributes to higher inflation—currently around 26.4%—the situation is starting to change. If we can see a decline in inflation to around 20.4% by 2024-2025, lower interest rates should follow. However, it’s likely that households and businesses might have to wait until early 2025 for rates to become more supportive.
Editor: The forecast you provided indicates an inflation decrease and hopeful GDP growth ahead. What long-term changes do you expect as a result of these economic strategies?
James Swanston: Over the medium term, if the government successfully implements reforms and manages inflation, we can expect a stronger economic foundation. Although challenges remain, a successful transition could lead to sustained growth, improving living standards, and greater resilience to external shocks. The projected GDP growth of 4.1% by the IMF in 2025 is indicative of this potential.
Editor: Thank you, James, for your valuable insights into the evolving economic landscape of Egypt. It seems there is cautious optimism for the future.
James Swanston: Thank you for having me. It’s important to keep a close eye on the forthcoming months as Egypt continues its recovery path.
