We may be close to finishing the IMF program, but our trade balance isn’t looking much better: Egypt’s current account deficit will continue to widen over the coming quarters as the country’s trade balance deteriorates, Fitch Solutions says in a new report. The report forecasts the deficit increasing to 2.8% of GDP in FY2019-2020 from 2.5% last year due to stalling export growth and rising imports. The current account deficit narrowed significantly between 2016 and 2018 as remittances increased and tourism revenues recovered. However over the past year it has widened rapidly, increasing from USD 493 mn in 4Q2017-2018 to USD 3.75 bn in 3Q2018-2019.

Oil and gas production growth won’t continue at its current rate: Fitch’s oil and gas team expect production growth to fall sharply in 2020 to 6.6% from 16.4% in 2019. This isn’t great news considering the centrality of hydrocarbons to exports over the past few years, and attract the bulk of the country’s FDI.

Fitch sees the EGP continuing to strengthen during 2H2019, placing extra pressure on non-oil exports which grew at a meager 0.3% y-o-y in 1Q2019. The EGP has continued to gain against the greenback in 2019, rising more than 9% since the start of the year.

We’re lessening our dependency on imported fuel, but this is “far from enough.” Booming domestic gas production and the fuel subsidy cuts have reduced the fuel bill, but reliance on other imported goods means that this will have only a limited impact on the trade deficit. Fitch expects import growth to remain “relatively strong” in the short term, given the long-term process of improving domestic supply.

Tourism and remittance inflows will continue to increase in the coming quarters, helping to mitigate the effects of the poor trade balance. Stronger GDP growth in the Gulf will provide a boost to remittances, while tourism will continue its recovery albeit with a slower revenue growth.

Anemic FDI means plenty of debt financing is still on the menu: Net FDI inflows have barely moved since the government began its economic reform program two-and-a-half years ago, and remain small. Non-oil inflows fell to five-year lows of USD 400 mn in 1Q2019. “We expect [current account] shortfalls will continue to be funded by debt, given that foreign companies still seem too unsure about Egypt’s reform trajectory to commit money as direct investments,” Fitch says.