The economic landscape in Egypt, challenges and strategic paths

Date: 13 - 03 - 2024


Source: Al-Wafd newspaper

Dr. Ali Mohamed Al-Khouri

Despite the increasing economic and social challenges that Egypt faces internally, the national economic trajectory continues to show signs of growth, even if this is occurring at a slower pace than expected. However, the general economic scene is accompanied by a noticeable increase in the annual inflation rate, which reached record levels of 30% in January 2024, while food price inflation jumped to more than 70%, which has weighed heavily on the cost of living for the average citizen.

Egypt also suffers from a large burden of external debt as a result of the series of borrowing it has witnessed in recent years. This challenge is greatly exacerbated by the depreciation of the currency and the rise in interest rates, as interest payments have swallowed up more than 45% of total revenues since mid-2023. Then, despite the income generated from the Suez Canal and the tourism sector, the rise in oil prices and the ongoing conflicts in Gaza and other geopolitical tensions are starting to become an obstacle. In addition, there is continued weakness in foreign investment in the country, with the exception of the oil and gas sector, which increases the difficulties of economic recovery efforts.

To address multiple economic challenges, policymakers must adopt a strategic approach that combines immediate tactical measures with long-term structural reforms. The crucial starting point lies in expanding the scope of private sector participation, as the engine of growth and innovation to drive economic growth. The implementation of such policies must be followed by simplifying regulatory frameworks, reducing bureaucratic obstacles, creating an investment-friendly climate, creating job opportunities, and raising the level of efficiency.

Sustainable economic diversification emerges as another strategic pillar. Relying on the Suez Canal and tourism to collect revenues from foreign currencies, although beneficial, exposes the economy to external weaknesses. Diversification into sectors such as renewable energy, technology, and service sectors can mitigate these risks and allow benefiting from new sources of growth and development. This transformation requires an innovative mindset that supports the development of small and medium-sized companies and encourages the adoption of new technologies.

Expanding and improving social safety nets is imperative to protect vulnerable segments of the population from the direct repercussions of economic reforms and adjustments. The worsening rates of inflation and unemployment due to structural adjustments and external shocks have affected the stability of markets and the standard of living of the Egyptian citizen. As such, social interventions to expand coverage, strengthen implementation mechanisms, and ensure adequate support can contribute to maintaining social cohesion during transitional periods.

We come to the focus of managing growing debts and ensuring financial sustainability. A growing debt burden, if not managed systematically and wisely, can hamper economic prospects. This requires adopting clear debt management plans, in addition to financial discipline and prioritizing growth-enhancing expenditures, as a necessary element for maintaining economic stability and investor confidence. It is important that plans include exploring options and opportunities for debt restructuring, improving revenue collection, and rationalizing public spending with the aim of allocating financial resources to high-impact development projects.

Finally, prioritizing education and skills development is key to addressing structural mismatches in the labor market. An educated and skilled workforce is a cornerstone of the modern economy. It is necessary to study the allocation of investment budgets for the education and vocational training sector and continuous learning initiatives, especially for young people, to provide them with the skills and competencies necessary to achieve success in the changing and competitive labor market. Encouraging partnerships between educational institutions and industries to align curricula with market needs will increase employability and productivity.

These recommendations are critical elements to support structural reforms to enhance private sector participation and gradually restore macroeconomic stability to ensure sustainable development and prosperity for all Egyptians.