Egypt’s economic growth is forecasted to slow to 3.8 percent in financial year 2015/16 from 4.2 percent expected in 2014/15, a World Bank report showed Thursday.
The report, entitled ‘Global Economic Prospects: Spillovers Amid Weak Growth’ expects the Egyptian tourism sector to weaken further following the downing of a Russian plane in October.
A foreign currency shortage facing Egypt’s economy in recent years, is also expected to persist through at least part of the current fiscal year, contributing to the low forecast.
“For Egypt, the contraction in foreign currency inflows that would accompany a shrinking tourism industry would not only negatively impact growth, but would exacerbate the existing foreign currency shortage,” said the report.
The World Bank predicts “an additional round of currency devaluation” to be part of efforts by recently appointed central bank governor Tarek Amer to boost foreign currency reserves, which stood at $16.445 billion at the end of December.
The Egyptian pound is officially traded at 7.83 to the dollar, a value stronger than the black market rate of 8.5 pounds. The central bank holds auctions every week which set the value of the currency, depleting its reserves.
But a further round of devaluation would mean “monetary policy will have to resist pressure on an inflation rate that is already high.”
Inflation in Egypt accelerated to 11.8 percent in November compared to the same month last year, prompting the central bank to raise interest rates to 9.25 percent for the deposit rate and 10.25 percent for the lending rate in December.
Nonetheless, the report expects growth to pick up in later years, driven by investment.
Net foreign direct investments recovered in the fiscal year ending June 2015 to $6.4 billion, the highest figure since the uprising but still lower than the original target of $10 billion.
Expectations for higher investment inflows were driven by pledges at the Economic Development Conference held in the resort city of Sharm El-Sheikh in March last year.
Saudi Arabia, Kuwait, and the United Arab Emirates, who supported Egypt following the ouster of president Mohamed Morsi in 2013 on the back of a popular uprising against his rule, pledged further investment during the conference.
The Saudi Public Investment Fund last month pledged investments worth 30 billion riyals ($8 billion) for the country’s housing, energy and tourism sectors.
The World Bank report also noted that there is room for accelerating the fiscal reform programme taken by Egypt since President Abdel Fattah al-Sisi took office, because the “introduction of a second round of energy subsidy cuts and a value-added tax has stalled.”, Ahram Online reported.
Egypt cut fuel subsidies in July 2014, raising prices at the pump by up to 78 percent. A property tax was also introduced as part of a fiscal reform programme seeking to clamp down on a ballooning budget deficit which hit 11.5 percent in 2014/15.
In December, Egypt revised its growth forecast to 5.5 percent for the current fiscal year, up from 5 percent, counting on rising investments in labour intensive infrastructure and reform, according to Planning Minister Ashraf El-Araby.