Egypt Targets 4.1% Economic Growth In Fiscal 2024, Highest Budget Surplus

the Egyptian cabinet said Wednesday it targets 4.1% growth in the gross domestic product (GDP) and aims to achieve the highest budget surplus in Egypt's history as part of the fiscal 2023-2024 budget, in addition to increasing allocation to subsidies, including food and petroleum.

Subsidies increase

The Egyptian cabinet expects to expand its allowances for subsidies and grants by 28.2% in the fiscal 2024 budget, compared to 17.1% in this year's budget.

It also said it would increase its allocation for subsidies of food, petroleum products, exports, medical insurance and drugs, housing, and social security pensions by 20%, 24%, 462.5%, 50.4%, 103.5%, and 24%, respectively, according to a draft budget approved Wednesday.

Egypt has been striving to control the economic headwinds brought on by the fallout from the conflict in Ukraine, which include higher import prices for petroleum and grain.

GDP growth

The forecast increase in Egypt's GDP growth falls short of Morgan Stanley's 5% growth expectation in fiscal 2024, which starts in July this year, according to a Tuesday report by the investment firm. The cabinet also aims for a 2.5% surplus in the 2023-2024 budget, marking the highest in the country's history.

However, these targets face a downward risk from Egypt's medium and long-term debt repayments of public external debt, which reached nearly $8.1 billion for fiscal 2023 and $7.5 billion for fiscal 2024.

Inflation target

The cabinet wants to keep inflation confined to a 16% rate in the next fiscal year. Inflation rose to 31.9% year-on-year in February, a sharp acceleration from 25.8% in January.

Contrary to the cabinet's inflation expectations, Morgan Stanley expects headline inflation to peak at nearly 38% year-on-year by August/September this year and average 25% year-on-year for fiscal 2023 and 27% for fiscal 2024.

Whether inflation is going the cabinet's way or the analysts' essentially depends on the movement of the exchange rate and the Central Bank of Egypt's (CBE) monetary policy, as well as the foreign exchange liquidity in the economy.

The investment firm's report said an interest rate hike of 200-300 basis points was likely in the next CBE meeting on Thursday as part of a larger 400-basis-point increase over the next three months. The CBE maintained interest rates unchanged in its meeting last month against the forecast of a hike.