An overview of Structural Imbalances in Egypt

Abstract

The Egyptian economy has been negatively affected by the political instability that the country has witnessed since 2011. Indeed, this instability showed the extent to which the Egyptian economy suffers from several structural imbalances that first amplified the negative effects of the revolution and then delayed its recovery. This paper analyzes both internal and external structural imbalances that characterize the Egyptian economy and presents a roadmap for future reforms. Egypt is suffering from three primary levels of internal imbalance: the sectoral level (a declining industrial sector with a low level of competitiveness), the fiscal level (between revenues and spending, current vs. productive spending), and the monetary level (non-transparent monetary policy). Externally, two structural imbalances can be identified, namely a high level of imported intermediate inputs leading to a chronic trade deficit and FDI concentrated in low-value-added. It is argued that the main reasons for such imbalances are inefficient political and economic institutions.