"The world economic crisis has extended its shadows on the Egyptian economy in FY2008/09, as after three consecutive years of strong GDP growth of around 7%, the forecast by the Egyptian government as well as the International Monetary Fund (IMF) was set at an average between 5% and 5.5% for the FY2008/09, compared to a world projected average of 0.9%. Having said that, in general Egypt’s medium term outlook remains sound. We believe that the Egyptian economy is capable of surpassing the current storm, thanks to the reforms implemented since 2004. Most likely, the government will work on curbing inflation, maintaining economic growth and balance of payments stability, throughout 2009.
In FY2007/08, the government's total revenues and grants surpassed the budget where it stood at LE221.4bn, reporting an increase of 22.9% compared to the budget growth of 3.9% over FY2006/07. The increase came on the back of the 20.0% growth witnessed in the tax revenues in FY2007/08. However, the real threat that could hinder growth is the high inflation rate, which peaked in August 2008 to 23.6% and declined in December 2008 to 18.3%. The trade deficit is not expected to worsen in 2009 as the imports decline, as a result of a weaker domestic demand and plunging commodity prices will offset the expected drop in the country’s exports. Although under the current world circumstances the increase in FDI inflows would seem not likely, Egypt could benefit from its location and natural resources in attracting more inflows. Despite the challenges that currently face the Egyptian government to sustain the economic growth above 5%, the financial intermediation will not be hampered by the international credit crunch, supported by a strong banking sector with healthy balance sheets and low level of financial integration, thanks to the government reforms."
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