OECD gives us a bill of health and chimes in with its two cents on the way forward: Egypt needs to ramp up private sector activity, rationalize spending cuts, and maintain restrictive monetary policy to help boost economic growth, the Organisation for Economic Co-operation and Development (OECD) said in its first economic survey of Egypt on Friday.

Our OECD bill of health:

  • Growth to fall this fiscal year before recovering in the coming years: The OECD sees economic growth falling to 3.2% in the current fiscal year — from 3.8% in the last fiscal year — as inflation continues to drive down consumption. Growth is set to pick up to hit 4.4% in FY 2024-25 and 5.1% in FY 2025-26 provided that inflation subsides.
  • Public debt is expected to fall to 92% of GDP in FY 2023-24 and decline further to 86.9% and 80.7% in the next two fiscal years.
  • The current account deficit is expected to narrow to 0.8% of GDP in FY 2023-24 and FY 2024-25 and further to 0.7% in FY 2025-26.
  • Budget deficit is expected to increase to 7.8% of GDP in FY 2023-24, before narrowing to 7% and 6.5% in the subsequent fiscal years.
  • Annual headline inflation is expected to average 32% in the current fiscal year, before plummeting to 15.9% in FY 2024-25 and 7.5% in FY 2025-26.

The doctor’s orders: The OECD put forward a number of recommendations for shoring up the economy. Below is a rundown of some of their key suggestions:

#1 – Continued monetary tightening: “Bringing inflation under control is now a key near-termpriority to spur consumption and strengthen growth. Monetary policy needs to remain restrictive until inflation comes back to target,” OECD Secretary-General Mathias Cormann said at a presser while presenting the survey.

#2 – Doubling down on fiscal consolidation: Spending cuts recently introduced by thegovernment should be coupled with a thorough review of public investment projects, the report reads. The state should further work to rationalize infrastructure projects and postpone the implementation of some large-scale public investment projects in a bid to lower public debt and redirect funds to priority areas, such as healthcare and education. It should also phase out untargeted energy subsidies, the report suggests.

Remember: The Madbouly government’s decision to slash public investment and scrap taxexemptions previously granted to state entities and public-sector companies and projects went into effect earlier this month.

#3 – Boosting private sector activity: Reducing regulatory barriers and scaling back the footprint of state-owned enterprises would level the playing field, according to the report. Additionally, the state privatization program should allow for more transparency in the choice of assets to be sold and the timelines.

#4 – Creating more flexible labor markets: This entails streamlining employment regulations,reducing labor taxes to incentivize the creation of higher quality jobs and lowering social security contribution rates — a significant driver of informal employment and the subsequent lack of social protection for workers. The government should also expand childcare facilities to encourage greater female participation in the workforce, which currently stands at 12.7%.

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