World Bank cuts Egypt's predicted 2016 growth rate

Egypt's economic growth is forecasted to slow to 3.8 percent in fiscal year 2015/16 from 4.2 percent expected in 2014/15, according to a World Bank report issued on Thursday.

The report, entitled 'Global Economic Prospects: Spillovers Amid Weak Growth' expects the Egyptian tourism sector to weaken further following the downing of a Russian plane in October.

A foreign currency shortage facing Egypt's economy in recent years, is also expected to persist through at least part of the current fiscal year, contributing to the low forecast.

"For Egypt, the contraction in foreign currency inflows that would accompany a shrinking tourism industry would not only negatively impact growth, but would exacerbate the existing foreign currency shortage," said the report.

The World Bank predicts "an additional round of currency devaluation" to be part of efforts by recently appointed central bank governor Tarek Amer to boost foreign currency reserves, which stood at $16.445 billion at the end of December.

The Egyptian pound is officially traded at 7.83 to the dollar, a value stronger than the black market rate of 8.5 pounds. The central bank holds auctions every week which set the value of the currency, depleting its reserves.

But a further round of devaluation would mean "monetary policy will have to resist pressure on an inflation rate that is already high."
Inflation in Egypt accelerated to 11.8 percent in November compared to the same month last year, prompting the central bank to raise interest rates to 9.25 percent for the deposit rate and 10.25 percent for the lending rate in December.

Nonetheless, the report expects growth to pick up in later years, driven by investment.