Egypt’s bold reforms start to bear fruit

Stability and bold new reforms after a period of political and economic turmoil will yield Egypt GDP growth of 3.5 per cent in the year to 2015 and 5 to 6 per cent thereafter, according to Renaissance Capital.

Last week, Egypt posted GDP growth of 2.2 per cent for the year to June 2014. That is inadequate for a country with high unemployment and a youthful population. But the GDP figures also hinted at substance behind the hope that has surged through Egypt since President Fattah al-Sisi came to power earlier this year: in the three months to June, GDP rose 3.7 per cent.

Al-Sisi was elected in May 2014 with 97 per cent of the vote (in a two-candidate election from which the previous governing party was banned from competing). He has since used his sway to introduce much needed reforms. Renaissance Capital said it expected his reforms – primarily to cut energy subsidies, raise taxes and attract investment – to be sustained over the next two to three years.

Most significant are cuts to Egypt’s ruinous subsidies, which Sisi slashed by about a third in July. RenCap said that Sisi seemed to regard the subsidies – which accounted for 30 per cent of state budget expenditure last year – as a factor in the 2011 revolution.