The Evolution of Egypt's Economy

Recent Developments

- Egypt's economy is recovering from the repercussions of political tensions in the region. Evidently, Egypt's tourism has pulled out of declines. While hotels in Egypt enjoyed admirable occupancy rates in the summer of 2003, revenues from the Suez Canal rose by over 20% in fiscal 2002/2003 from the previous year. On the back of sustained high oil prices, oil exports also recorded an increase of over 30% in fiscal 2002/2003. The International Monetary Fund forecasts the Egyptian economy to grow by 3% in 2004.

- The Egyptian pound was allowed to float in January 2003. Capitalising on the depreciation of the currency and a recovering global demand, Egypt's exports rose substantially in 2003. As a related development, Egypt's consumer prices were jacked up by higher import prices.

- Services, including government services, account for almost half of Egypt's GDP. Top service sub-sectors include tourism, the Suez Canal, trade, finance, insurance and transportation. Manufacturing industries are also important sectors, accounting for some 20% of Egypt's GDP. While agriculture contributes to over 16% of Egypt's economy, petroleum and natural gas take up an 8% share.

Current Economic Situation

Starting from 1991, the Egyptian government has instituted an Economic Reform Programme that has successfully transformed Egypt into a prosperous emerging market with greater vitality. This results from the implementation of a set of economic policies to unleash market forces to drive growth and employment. The legacy of centralization and public sector domination of the economy is over. Today, there is universal recognition that Egypt has become one of the most stable emerging markets.

Egypt's economy is now on the road to recovery. In early 2003, Egypt's receipts in tourism, the Suez Canal, expatriate remittances and exports were negatively affected by the tensions over Iraq. With the stabilisation of geopolitical conditions, Egypt's tourism has pulled out of declines. While hotels in Egypt enjoyed a high level of occupancy rates in the summer of 2003, revenues from the Suez Canal rose by 22% in fiscal 2002/2003 from the previous year. On the back of sustained high oil prices, oil exports also increased by 33% in fiscal 2002/2003. Egypt's economic expansion is expected to continue in 2004. The International Monetary Fund forecasts the Egyptian economy to grow by 3%.

The Egyptian government put an end to the peg of the Egyptian pound with the US dollar in January 2003. While allowing the pound to float, the government has stepped in to limit the decline of the currency. Despite this effort, however, the Egyptian pound has still depreciated by about 25% since January 2003.

Thanks to the depreciated Egyptian pound and recovering global demand, Egypt's exports rose substantially in 2003. It is estimated that Egypt's exports rose by almost 21% in 2003. Major destinations of Egyptian exports included the US, Italy and UK. On the back of stronger domestic demand, Egypt's imports also increased by 13%. Major suppliers of imports included the US, Germany and Italy.

The continued decline in the exchange rate of Egyptian pound has fuelled inflation. In September and October 2003, Egypt's inflation rate grew at an annual rate of 4.7% and 5.2% respectively. With a recovery in domestic demand, inflation rate looks set to increase.