The European Bank for Reconstruction and Development (EBRD) has cut its Egypt growth forecast for the current fiscal year as the economy continues to face headwinds due to a protracted currency crisis and heightened inflation. The multilateral lender now sees the economy growing at a 4.0% clip this year, down 0.7 percentage points from its last forecast three months ago, it said in its latest Regional Economic Prospects report (pdf).

This is lower than government forecasts: Projections in the government’s new budget see economic growth slowing to 4.2% in the current fiscal year from 6.6% in FY 2021-2022. GDP will fall again to 4.1% in FY 2023-2024.

The year so far: Economic growth has slowed to4.2% during the first half of FY 2022-2023, down 9% from the same period last year. The EGP devaluation against the greenback, soaring inflation, and back-to-back rate hikes have all weighed on economic growth this year, the EBRD said.

2024 forecast trimmed: The EBRD now sees the economy growing at a 4.8% clip in FY 2023-2024, down from its forecast for 5.0% growth in February.

Pros: Rising gas exports, the country’s increasing clout as a regional energy hub, and expected structural reforms to take place under the IMF loan program are all pluses for the Egyptian economy, according to the EBRD.

Cons: “Headwinds could arise from further inflationary pressures, tighter monetary conditions, challenges in obtaining external financing, and any slowdown in the implementation of structural reforms, including delays in the sale of state assets,” the bank wrote.

Debt problems: Egypt is expected to spend 60% of its revenues on servicing its debts this year, and 70% in 2024, the bank said. The draft budget sees debt servicing costs rising to EGP 1.12 tn in FY 2023-2024, 52% of projected revenues.

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