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The merits of fiscal discipline: Egypt The Egyptian government’s fiscal reform measures were critical in stabilizing the economy—growth has accelerated and current account and fiscal deficits have narrowed
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hough the impact of the COVID19 pandemic on Egypt’s tourism sector and the week-long blockade of the Suez Canal by Ever Given derailed the country’s growth prospects, the World Bank projected that the economy will expand by 2.3% in 2021. Egypt partly managed to contain the economic impact of coronavirus as growth continues even as the pandemic has battered oil-rich nations across the Arab world. Tourism and the Suez Canal are the North African country’s two main sources of foreign currency. By mid-2016, Egypt’s economy was teetering on the edge as investors shunned the Arab world’s most populous nation but
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now it is being hailed by investors as one of the region’s fastest-growing economies. “Egypt’s macroeconomic reforms of recent years helped stabilize the economy, allowing the country to enter the pandemic with a level of economic stability that somewhat cushioned the blow of the COVID-19 crisis,” said the World Bank. An unsustainable policy mix had left Egypt facing low growth, elevated and rising public debt, and a mounting balance of payments problem with severe shortages of foreign exchange as well as an overvalued exchange rate. However, Egypt managed to reduce its debt by 20% in the past three years despite the double whammy of COVID-19 and low oil prices.
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The Egyptian government’s fiscal reform measures were critical in stabilizing the economy—growth has accelerated and current account and fiscal deficits have narrowed. The country reported real GDP growth of 3.3% in the fiscal year that ended in June 2021 and is targeting 5.5% for the current year, according to the Ministry of Finance. The North African nation’s foreign currency reserves have risen while public debt, inflation and unemployment have significantly declined. Meanwhile, the ratio of the debt-to-gross domestic product remains manageable, partly because the economy is growing relatively fast. S&P Global said that Egypt has sufficient buffers to guard against market pressures due to the country’s maintained sizable foreign exchange reserves of about $41 billion as of end-July 2021, though lower than the $45 billion it held before the outbreak of the pandemic.
Fiscally fit Egypt’s economic reform program implemented a significant policy adjustment that was anchored by the
