Egypt’s real GDP growth is expected to decline to 3.1 percent in 2022, down from 7.2 percent recorded in 2021, and to jump to six percent in 2023, the European Bank for Reconstruction and development (EBRD) said on Thursday.
In November 2021 prior to the Ukrainian-Russian conflict, the EBRD projected Egypt’s real growth to reach 4.9 percent in the current FY2021/2022 (ends in June 2022), driven by a boom in the telecommunications sector, in private consumption, and investment, as well as the return of foreign direct investment (FDI).
In its Regional Economic Update report titled “In The Shadow of The War. The Economic Fallout From the War In Ukraine,” the EBRD pointed out that the implications of the conflict on the southern and eastern Mediterranean regions – where Egypt is located – are significant, particularly the higher oil and food prices for consumers, and secondary effects for the budget, food security and medium-term growth drivers.
“In all countries, petroleum products are the biggest single import position, and several are also dependent on imported food products, notably in Egypt, Tunisia, and Jordan,” said the report.
Imported inflation is expected to hinder the region’s growth and its recovery from the pandemic process, including Egypt, as per the report.
In this respect, the report explained that food and fuel subsidies (and/or price caps) are likely to curb inflation for households, but create a burden on public finances.
“Besides the macroeconomic impact, the rise in prices will bring risks to food security, notably for the poorest parts of the population which were already hit hard by the pandemic. According to the dietary sourcing flexibility index (DSFI) developed by FAO, consumers in Tunisia, Morocco and Egypt are particularly vulnerable, with significant shares of the population unable to support a healthy diet if prices rise and governments do not step in with support programmes,” the report further noted.
The report said that the war could avail opportunities for gas exporters, while having a negative implications on tourism and supply chains in countries with sectoral concentration in the region, including Egypt.
On the upside, changes in global gas markets could create opportunities for potential gas exporters in North Africa, chiefly Algeria, Egypt and Libya on the long-term, especially if pipeline access to Europe is streamlined, according to the report.
For tourism and supply chain disruptions, the report illustrated that the expected drop in such sectors may affect important growth drivers for the region’s countries.
“Ukrainian and Russian tourists accounted for around 20 percent of arrivals in Egypt in recent years, and Russian tourists accounted for around seven percent in Tunisia, for example,” the report highlighted.
Moreover, the report warned that an extended war would place further pressure on the exchange rate in the region’s countries; including Egypt, particularly with weaker tourism revenue, underpinning the Egyptian authorities actions to address these impacts, mainly the devaluation of the Egyptian pound by about 17 percent and tapping the international debt markets.
