Abstract
This 2007 Article IV Consultation highlights that sustained and bold reforms, prudent macroeconomic management, and a favorable external environment enabled the Egyptian economy to register another year of impressive performance. Growth remained high and has become more broad based, creating record numbers of jobs. Inflation has returned to single digits after spiking during the year through March 2007. Strong growth and rising equity and real estate prices have boosted domestic demand. Exports also rose sharply, along with worker remittances, Suez Canal receipts, and tourism revenues.
1. The following information has become available since the issuance of the staff report on November 2, 2007. It does not alter the thrust of the staff appraisal.
2. Inflation—as measured by the old CPI—moderated to 6.9 percent in October (year-on-year basis) after rising slightly in September to 8.8 percent. Since September, the authorities have also published a new CPI series with updated weights of the consumption basket. This series covers observations available since January 2007 and involves a greater weight of food in the basket (a revision in weight from 39 to 44 percent). Under the new series, monthly CPI inflation in September and October was 2.1 percent and 1.0 percent, respectively (compared to 1.4 percent and 0.9 percent under the old series).
3. Balance of payments data for the July-September 2007 period show a somewhat larger deterioration in the current account (by US$1.5 billion, compared to July-September 2006) than projected by staff (US$1 billion), largely because of higher than anticipated service payments for transportation and travel. Non-oil exports expanded by 20 percent, but oil exports fell sharply. The decline in the current account balance was more than offset by higher FDI inflows, including in the oil sector.
4. The growth of monetary aggregates moderated somewhat, reflecting some capital outflow in September—following the global credit crunch—and stepped-up sterilization in October. The year-on-year increase in reserve money decelerated to 14 percent in October (from 18 percent in September), while broad money growth in September was 17 percent (down from 18 percent in August).
5. The authorities have issued a government decree raising gas and electricity prices for large industrial consumers (except those in the food processing and textiles industries). Gas prices will more than double and electricity prices will increase by about 60 percent over a three year period. Preliminary estimates indicate that these measures could yield over 1 percent of GDP in annual savings by 2009/10.
6. Preliminary fiscal data for the first quarter of fiscal year 2007/08 suggest buoyant revenues after adjusting for one-off factors, and expenditure growth broadly in line with seasonal patterns. The recently enacted energy price adjustment for industrial users should help reach this year’s budget target.