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THE EGYPTIAN

ECONOMYReforms, Results and Remaining Challenges

Vienna, April 26th, 2018

The Egyptian Economy

Key Elements of the Reform Program

Main Results

Challenges Ahead

Opportunities

….Prior to the Reform Program

A long-standing and ultimately unsustainable policy mix resulted in:

Low growth and investment;

Rising inflation;

Elevated general government debt;

Overvalued and scarce foreign exchange;

Widening current account deficit; and

Dwindling international reserves (three months of imports).

Egyptian Reforms

An ambitious comprehensive reform and adjustment program, supported

by an Extended Fund Facility (EFF) Arrangement with the IMF, aiming

at:

Improving the Welfare of All Egyptians

Through adopting simultaneous

Economic and structural reforms;

Administrative reforms; and

Legislative reforms.

Aiming at creating a supportive environment for private sector

development, inclusive growth and job creation .

Egyptian Reforms

Macroeconomic policies

Investment friendly environment

Labor market flexibility and efficiency

Education reform

Social protection

Macroeconomic Policies:

Freely floating the Egyptian pound and pursuing a tight monetary policy to

contain inflation pressures

Launching a three-year fiscal consolidation program to reduce persistently high

budget deficits;

Reforming inefficient energy subsidies, and

Supporting partnership with private sector.

Egyptian Reforms

• Investment Friendly Environment:

New Investment Act;

New Industrial Permits Act;

Bankruptcy Act;

New tax law; and

New civil servants law and administrative reform to address corruption & red

tape

Egyptian Reforms

• Labour Market Flexibility and Efficiency

Promoting SMEs;

Supporting the integration of the informal sector within the formal economy;

Providing training programs; and

Establishing incubators and linking them to research centers and

business/industry to create an integrated echo system

Egyptian Reforms

• Education Reform

New education system starting September 2018 that links market needs with

output of the educational process

• Social Protection

Strengthening social protection measures, and transformation from in-kind

support to cash support); aligned with the targeted cash transfer programs of

Takafol and Karama (Solidarity and Dignity) social program

Egyptian Reforms

Main Results

• Improving Real Sector Indicators

• Stabilizing Monetary and Fiscal Stance

• More Favorable External Balances

• Increased Confidence in the Egyptian Economy

Source: Ministry of Planning, Follow-up, and Administrative Reform

2,9

4,4 4,3 4,2

5,2 5,3

2013/14 2014/15 2015/16 2016/17 Q1-2017/18 Q2-2017/18

Economic Growth, Real (%)

Real Sector: Improving Economic Growth

0

1

2

3

4

5

6

Q1 Q2 (estimated)

2,81,9

1,51,6

0,91,80

Investment Final Consumption Net Exports

Q1 & Q2 2017/18

%

Source: Ministry of Planning, Follow-up, and Administrative Reform

• Investment: 36%

• Net Exports: 34%

• Final Consumption: 30%

5.2% 5.3%GDP

Growth rate

Real Sector: Growth Driven Mainly by Investment

Real Sector: Manufacturing Leading the Growth

Manufacturing(14.4%)

Extractions(12.5%)

Construction(9.5%)

14,4 12,5

9,5 9,27,6

6,1

3,7 3,7 3,4

02468

10121416

Economic Growth (1st Half 2017/18), Sectors Contributions%

13,4 12,9 12,8 12,411,3

0,0

5,0

10,0

15,0

2013/14 2014/15 2015/16 2016/17 2017/18

Unemployment Rate (%)%

Real Sector: Declining Unemployment Rates

(Q2)

40 %of new jobs opportunities created by wholesale and retail trade sector,

followed by transportation and storage sector with a share of about 29 %

as a result of

Improved transport activity in light of growing domestic trade and exports

Growth of marketing outlets, commercial centers, and logistic zones

Monetary Balances: Declining Inflation Rate

14,816,4

14,6 14,0

20,2

24,3

29,631,7 32,5 32,9

30,9 30,9

34,2 33,2 32,9 31,8

26,7

22,3

17,014,3

10

15

20

25

30

35

40

General Inflation Rate (Annual Basis)

%

Stable and Available Forex

Exchange Rate L.E /US$

18,537

18,029

17,79317,703

17,56

17

17,2

17,4

17,6

17,8

18

18,2

18,4

18,6

18,8

Jan., 2017 June December Jan., 2018 March. 13, 2018

(L.E/US$)

Monetary Balances

Source: Central Bank of Egypt (CBE)

Source: Central Bank of Egypt (CBE)

0

2

4

6

8

10

12

14

16

18

20

Jan. 6, 2016 March, 24 June, 23 November,

3

May. 25,

2017

July, 13 Feb. 15,

2018

9,2510,75

11,75

14,75

16,75

18,7517,75

Initial increase in interest rates to absorb excess liquidity and restrain

inflation, heading south after controlling inflation

Source: Ministry of Finance

Overall fiscal deficit as a percentage of GDP fell down to 4.2 % for the first half of

2017/18 compared to 5 % for the same period in the year earlier

6,45

4,2

2,21,1

0,30

2

4

6

8

10

12

2015/16 2016/17 2017/18

Overall Deficit Primer Deficit

Overall & Primary Deficit (% GDP)%

First Half

Fiscal Balances: Declining Deficit

External Balances: Shrinking Trade Gap

21,7

31,8

10,1

18,3

29,5

11,2

0

10

20

30

40

Trade Balance (Deficit) Imports Exports

2017/16 2018/17

US$ billion

Source: General Organization for Export and Import Control.

2017/18

((3 %

((5.3 %

2013/14

Fromto

((11 %

(-7.3 %)

(-15.7 %)

Exports

Imports

Trade Balance Deficit

Shrinking foreign trade gap due

to growth of exports and import

substitution

Change(%)(First Half)

((-2.1%

Key Sectors with a decline in imports

0

5

10

15

20

25

3028,9

20,216,7

14,8 13,5 13,7

Key Sectors with an increase in exports

0

5

10

15

20

25

3028.6

23.5

12

5.7 4

%%

Source: General Organization for Export and Import Control.

External Balances: Growing Non-Petroleum Exports

External Balances: Comforting Levels of Net International Reserves

Net international reserves (US$)

14,9

26,428,6

36 36,7 38,242,5

10

15

20

25

30

35

40

45

June, 2013 Jan., 2017 April July October Jan., 2018 February

(US$ billion))

US$ 42.5 billion

in Feb., 2018

Source: Central Bank of Egypt (CBE)

Increasing the number of months covered by merchandise exports from 3.1 months in

June, 2013 to 8 months in Feb., 2018.

0

1

2

3

4

5

6

7

8

9

10

Dec., 2015 May, 2016 July, 2016 Dec., 2016 June, 2017 Jan., 2018

Source: FITCH

Increased Confidence: Improving Sovereign Rating

B

(stable)B

(stable)

B

(stable)

B

(stable)

B

(stable)

B

(Positive)

• Floating Egyptian pound

• Applying VAT

• Reforming Subsidy System

• Applying Civil Service Law

Ra

rin

g i

mp

rov

emen

t d

irec

tio

n

41,842,8 43,3

46,7 45,947,4 47,3 47,2

48,6 48,947,4

48,4

50,7

48,349,9

30

35

40

45

50

55

PMI

points

Increased Confidence: Increasing PMI

Increased business community

confidence in the business environment

Remaining Challenges

- High youth unemployment (14-25 year olds) (at 24.1%);

- High inflation rate: despite the downward trend since September 2017, it

remains high @14.3% (annual basis);

- High Domestic Debt ratios (foreign debt to GDP 34%, domestic debt to GDP

98%)

- Inadequate competitiveness. Egypt ranked 100 of 137 countries in the Global

competitive index; and

- Tourism sector has not yet witnessed an upturn albeit currency devaluation

and political stability.

On Going Reforms

- Fiscal Consolidation, increasing the tax base, reforming administrative costs;

- Continued monetary reform, inflation targeting, financial inclusion;

- Closing gender and age gaps (programs targeting women and youth);

- Improving resource management, particularly water usage and carbon

emissions;

- Structural reforms, privatization, developmental sovereign wealth fund;

- Fighting corruption through continued digitalization and administrative

reforms.

Ongoing Reforms

Fiscal Consolidation:

we need to create fiscal space for the significant spending needs and priorities as

the chart illustrates:

Spending Priorities over the medium-

term

Upgrading infrastruct

ure

Building sustainable

social safety net

Investment in health and

education

tax policy reforms

- broadening the VAT base;

- increasing progressivity of the personal income tax;

- improving corporate income tax performance;

- simplifying the tax regime;

- streamlining the tariff structure.

improving revenue administration

- direct and indirect tax management;

- creating a large and medium taxpayers’ unit and

- rationalizing staff accordingly;

and building risk-assessment programs by segment

This could be achieved through

Ongoing Reforms

Monetary reforms:

• Modernizing the Monetary Policy Framework: Toward Inflation Targeting

(IT) in the medium term will have preserved macroeconomic stability over the

medium- term.

• In this context, attaining low and stable inflation and financial market are essentially

required.

•To this end, we need to develop adequate institutional, operational, and governance

structures that are primarily essential for successful implementation of IT.Some of these institutional

pre-requisites include:

strengthening the financial stability framework consistent with

independent monetary policy

enhancing flexibility of the exchange rate;

defining price stability as the primary objective of monetary

policy;

strengthening autonomy of the central bank; and

Ongoing Reforms

Structural reforms: • Improving in business climate to support Private Sector-led Growth and increase

financial inclusion. Raise productivity and growth, and better integrate Egypt with global

trade are the main targeted areas. Generating higher growth and employment requires a

concerted reorientation towards private sector and export-led growth.

• Under the backdrop of increasing the potential growth in manufacturing sector, it will

have a special attention over the medium- term of reforms.

a five-year program to divest minority shares in select

state-owned enterprises

Structural reforms main pillars

Access to land continues to be one of the main hurdles for

the private sector

better integration of women in the labor force

Strengthening competition and addressing corruption

are key to achieving greater

economic efficiency

Ongoing Reforms

Developing the current system for investment allocations:

Should be based on the government priorities; from which:

•SDS: Egypt Vision 2030 programs and priorities.

•Completing and finishing the current implemented projects based on the ratio of

achievement (70% , 40% , less than 40%, replacement, extension, new).

•Supporting the Mega projects.

•The direct effect on improving the likelihood of the citizens.

•The impact of the investment on growth rates and job creation.

•Encouraging the participation of private sector (PPP & CSR).

•Efficiency of achievements in the current projects.

•Targeting Development gaps within the governorates.

A new formula for allocating PFCF at the regional level:

• Population intensity

• The inhabited area

• HDI

• Poverty rate

• Unemployment

30

Favorable production environment with:

- Improving Macroeconomic Outlook and business environment;

- Accessible factors of production, particularly young low-cost

labor force;

- Well-capitalized, under-leveraged banking sector flush with

liquidity; and

- Underlying potential in a number of sectors, including:

petrochemicals, infrastructure, agribusiness and

pharmaceuticals.

Main Opportunities

31

Production can be addressed to the local market with Egypt’s

populous economy with inherent sizable demand;

Main Opportunities

32

Or exported given the particularly advantageous geographical

location at the confluence of global shipping routes, made all

the more important being the 3rd country globally with access

to trade zones.

Main Opportunities

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