Inclusive Growth and Job Creation in Egypt

IMF News, May 5, 2018

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Speaker: David Lipton, IMF First Deputy Managing Director; Remarks to the Government of Egypt-IMF Conference, May 5, 2018.
Purpose: Highlight progress since 2016, describe remaining challenges, and frame policy discussion for sustaining stabilization and generating inclusive growth and jobs.
Overarching message: Build on macroeconomic stability to create jobs and raise living standards by deepening reforms, broadening private sector activity, and strengthening ownership and consensus at home.

Macroeconomic outcomes since the 2016 program:
- Growth resumed; "growth so far this year is at a 5.2 percent pace."
- Inflation "should decline to 11 percent."
- Public debt ratio is "expected to fall for the first time in nearly a decade."
- Exports and tourism are recovering; the current account deficit is falling; confidence and investment have picked up.
Key policy actions taken under the Fund-supported program:
- Liberalized the foreign exchange market.
- Tightened monetary policy and demonstrated monetary control to contain second-round inflation effects from the pound’s depreciation, fuel price increases, and the VAT.
- Implemented a three-year fiscal-consolidation effort, including subsidy reforms.
- Measures to strengthen the business climate and improve public financial management.
Social policy linkage:
- Subsidy reform has freed up funding for targeted social assistance and moved fuel prices toward true cost, enabling more efficient resource allocation.

External environment:
- Global growth projection: "3.9 percent this year and in 2019."
- Risks include higher interest rates, tighter financial conditions, and uncertainty in the global trading system.
Domestic fiscal and structural risks:
- Public debt "remains very high" and requires continued consolidation while protecting spending for health and education.
- Delays in energy-subsidy reform could leave the budget exposed to higher global oil prices.
Political economy challenge:
- Stabilization without deeper reforms risks fatigue, complacency, and opposition from vested interests that can undermine momentum.

Demographic outlook and job challenge:
- "By 2028, Egypt’s working age population will increase by 20 percent."
- "That works out to a labor force of 80 million Egyptians just 10 years from now."
- Creating jobs for this expanding labor force is identified as "Egypt’s biggest economic challenge."
Potential upside:
- If unemployment and labor force participation reach levels seen in many other emerging markets, "their absorption into the economy could boost growth into the range of 6 to 8 percent."
- Employment gains would translate into substantial improvements in living standards.

Indonesia:
- Broke cronyism and excessive central control, ended government monopolies, empowered private sector and local authorities, and adopted market-oriented policies leading to steadier growth.
Mexico:
- 2013 reforms opened the energy sector, reduced oligopoly control in telecommunications and finance, and implemented labor reforms to draw people out of informality.
- Outcome: "The result was the creation of 3.5 million jobs in the last five years, more than in the prior 12 years combined."
- Informal sector employment fell as formal employment growth rose at double the rate of GDP growth.
India:
- Strengthened the social safety net and reduced bureaucratic inefficiency and corruption using biometric ID and a payments architecture.
- Outcome: "deepened financial inclusion by bringing nearly 300 million people into the formal economy" and reduced opportunities for corruption in benefit delivery.
Technology point:
- New technology can be a "game-changer" for development and financial inclusion; countries that do not keep up risk being left behind.

Strategic priority: Encourage the growth of a healthy private sector as the realistic source of large-scale job creation.
Policy items proposed for consideration and discussion:
- Create a business climate with simple, transparent, and respected rules where small firms can scale to medium and large firms.
- Provide greater regulatory certainty to encourage investment and competition.
- Reduce the public sector footprint in business and commerce to clear space for private-sector growth and relieve entrepreneurs from competing with the public sector.
- Ensure enough labor market flexibility to allow young people to find jobs.
- Reduce non-tariff barriers and protections for domestic industries so Egyptian firms can integrate into global supply chains and expand exports.
- Build an economic system "built on fairness and free of corruption."

IMF role offered:
- Provide program support, advice, technical assistance, and training.
- Share experiences and success stories from other countries to inform Egypt’s reform and modernization agenda.
Closing analytical emphasis:
- Macroeconomic stability achieved creates a time-limited "window of opportunity" to press ahead with reforms before external conditions tighten.
- Broad ownership—government, business, civil society, and the population—is crucial for sustainable reform and inclusive growth.
- The conference aims to identify and prioritize policies that can translate stabilization into jobs and improved living standards.

Remarks to the Government of Egypt-IMF Conference, IMF First Deputy Managing Director David Lipton, May 5, 2018.