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Middle East and North Africa
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Egypt

Egypt is a large and diversified economy. It has the largest population in the MENA region (100m). The implementation of economic reforms since 2016 (with IMF support) has restored an acceptable macroeconomic situation. External liquidity is now adequate thanks to significant external support and the EGP is slightly appreciating. CPI inflation has significantly declined and the implementation of fiscal reforms has put the public accounts on positive dynamic. Nevertheless, some vulnerabilities and weaknesses remain. External liquidity is subject to volatile portfolio flows and variable tourism activity. The government debt is high (but mostly domestic) and the budget continues to be heavily constrained by the debt service, which is equivalent to almost half of total government revenues. The recourse to IMF financial support to weather the economic consequences of the pandemic highlights the persistent need of international support.

Economic activity is sustained (and remains positive during the pandemic) thanks to household consumption (driven by the demography) and public investments in infrastructure. Nevertheless, job creation is far from being sufficient to absorb the new entrants in the job market. As a consequence, the informal sector is large. The role of the public sector in the economy is very large. It can be positive when it accelerates the pace of investments, helps to smooth the social consequences of reforms and fills market gap, but it can have adverse consequences when it is a factor of disruption of economic competition. FDIs have been sustained for several years and have been concentrated in the hydrocarbon sector.

The political risk is stable. Socio-political pressure is significant and is not likely to decline in the short term. Demographic pressure is strong in a context of rising poverty (1/3rd of the population), and lack of job opportunities. For the time being, the regime has some economic and political leeways to answer to this pressure, but the fiscal constraint will remain strong in the medium term.

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