Egypt's economy to grow 3.5% in 2016/17

19/04/2016 04:46 AST

Egypt's economy will grow by just 3.5 percent over the 2016/17 fiscal year, widely missing the government's target of 5.2 percent and dipping below last year's growth rate, a Reuters poll found.

The economy grew by about 4.2 percent during the 2014/15 fiscal year, the government has said. Egypt's fiscal year runs from July through June.

Though the poll predicts that economic output will dip during the next financial year, it also sees the economy picking back up in 2017/18 to reach 4 percent growth. The poll questioned 13 analysts for the gross domestic product and consumer price index and five on the Egyptian pound.

"We expect this year is likely to be a tough one for Egypt owing to the short-term pain caused by the devaluation of the pound and the ongoing troubles in the tourism sector," said Jason Tuvey, Middle East economist at London-based Capital Economics. "That said, we think the foundations are starting to slowly fall into place for a rebound in 2017."

Before the 2011 development that overthrew former President Hosni Mubarak and drove away tourists and foreign investors, the economy grew about 7 percent annually for several years. But even that pace was barely enough to produce work for the large number of Egyptian youths entering the job market.

The central bank has been trying to balance the need for economic growth while keeping inflation risks at bay, but has been forced to raise interest rates in recent months to dampen price rises. It raised key interest rates by 50 basis points in December, citing inflationary pressures.

In March, it raised interest rates by 150 basis points to avoid fueling price rises after devaluing the currency by 12 percent.

Analysts polled put core inflation, which removes volatile food items like fruits and vegetables, at 11 percent for the coming fiscal year. That would be an increase from the current level, which reached an annual rate of 8.4 percent in March.

"As for inflation, we think that the fall in the pound has further to run and that will keep inflation elevated at least for the start of next year, before it then begins to grind lower," said Tuvey.

The analysts polled predicted that the Egyptian pound would weaken in the coming financial year, reaching 9 pounds to the dollar in 2016/17 and 9.5 the year after.

The official pound rate is now 8.87 to the dollar, while on the black market the rate is about 10.25 to the greenback.

A black market for dollars has sucked up liquidity from the banking system while the central bank kept the pound artificially strong and rationed dollars through weekly auctions, putting a strain on foreign reserves. Foreign reserves have fallen by more than half since 2011, to reach $16.56 billion in March.

Arab News