First, Second, and Third Fiscal Consolidation, Sustainable Energy, and Competitiveness Development Policy Loans to the Arab Republic of Egypt

Start & End Date: 2015-2019

Country/Countries: Egypt

Multilateral Institution(s) Involved: World Bank

Case Study: Available

At the time of appraisal of the programmatic DPF series, Egypt was emerging from a period of political and economic instability during 2011–14. Among the consequences of this instability, and the policies that prevailed before and during the period, was an exacerbation of macroeconomic imbalances and structural weaknesses in the economy.

The proposed operation is built around three pillars, which are also the program development objectives (PDOs) of the programmatic series: (1) advance fiscal consolidation through higher revenue collection, greater moderation of the wage bill growth, and stronger debt management; (2) ensure sustainable energy supply through private sector engagement; and (3) enhance the business environment through investment laws, industrial license requirements as well as enhancing competition. While many reform actions were envisaged, the ones that stood out for their potentially transformative nature were those proposing to cut energy subsidies, introduce a VAT that had been two decades in the making, foster a competitive market for electricity and gas with private sector participation, and modify industrial licensing policies to enable more firms to operate in an environment of regulatory certainty.

Above and beyond the achievement of specific results, there clearly was significant progress on fiscal consolidation. During the three-year period (FY16–FY18), the overall fiscal deficit declined from 12.5 percent of GDP to 9.7 percent. This was due largely to a decline in government spending, from 30.2 percent of GDP to 28.0 percent,10 assisted by the reduction of energy subsidies for both electricity and fuel, as well as the containment of the civil servants’ wage bill. Tax revenues rose from 13.0 percent of GDP to 14.2 percent, although total revenues and grants declined a bit because of a decline in nontax revenues and grants, as exceptional financing from the Gulf countries phased out. Energy subsidies declined as a percentage of GDP to 3.4 percent by end FY18 and stood at 1.9 percent at end FY19. New private investments in renewable energy climbed to 1,500 MW by end FY18 (as measured by financial closure of projects.) The number of energy audits for large buildings rose to 234 by end FY18.12 Furthermore, the indicator calling for a transformation of the energy deficit (of 5,540 MW) observed in FY15 to a surplus (of 1,000 MW) by FY18 was achieved ahead of schedule.