The Central Bank of Egypt (CBE) expected GDP growth to continue its upward trend supported by structural reforms.
The CBE, in its monetary policy report released on Monday, stated that it is intended to achieve a preliminary budget surplus of 2% of GDP during the fiscal year (FY) 2018/19, while continuing to achieve this surplus thereafter to reduce debt levels.
It added that it is targeted to reduce the overall initial deficit of the budget to 8.2% and 7.2% of GDP during FYs 2018/19 and 2019/20, respectively.
The CBE confirmed that the financial account surplus improved during the first quarter (Q1) of 2019, after it declined during the period between Q2 and Q4 of 2018.
According to the CBE, the improvement in the financial account surplus was mainly driven by the issuance of international bonds by the Ministry of Finance, as well as net investments in securities, especially in domestic debt instruments, supported by a positive change in investors’ view of emerging markets since the beginning of 2019.
Meanwhile, the net foreign assets of commercial banks improved after falling between Q2 and Q4 of 2018, it added.
Net foreign direct investments (FDIs) continued to decline year-over-year (y-o-y) during Q1 of 2019, for the third consecutive quarter, after improving y-o-y in Q2 of 2018, for the first time since Q2 of 2017.
The CBE noted that the GDP growth rate increased to 5.7% during Q2 of 2019 and 5.6% during FY 2018/19, the highest since FY 2007/08.
The CBE attributed the improvement in the GDP growth rate to the increase in net exports due to the improvement in the growth rate of exports and its decline in imports. However, the pace of recovery of the growth rate of exports has slowed since Q1 of 2018, to record a negative growth rate during Q1 of 2019, for the first time since Q2 of 2016, while the pace of contraction of the real growth rate of imports continued to rise.
“On the other hand, weak consumption has contributed to containing the contribution of private domestic demand to the growth rate of GDP since the fourth quarter of 2017, while the contribution of private investment was generally more positive, due to the increase in investments in the real estate and extractive sectors, in addition to the electricity sector recently,” the report read.
The contribution of general domestic demand to overall GDP growth has declined since Q2 of 2017, as a result of lower investments in national projects, although they improved during Q1 of 2019, supported by increased investments in the health sector.