Deutsche Bank takes a positive near-term outlook on Egypt’s economy: The near-term outlook for Egypt is positive, bolstered by a growing FX reserves, capital inflows, and improvement in its current account position, according to Deutsche Bank research “special report” (pdf) which came out yesterday. The bank notes that Egypt’s FX reserves had reached USD 28.6 bn in April (it grew to USD 31.1 bn in May), but warns that sustained net inflows are needed to cover significant financing needs in FY2017-18 and FY2018-19. The bank expects GDP growth to come in at 3.9% for 1Q17.

Private sector inflows have exceeded expectations, the bank said, noting the USD 7 bn Egypt had attracted in both its eurobond issuances in January and May. Egypt’s risk premiums have diminished, the bank said. DB analysts also find it remarkable that foreign inflows into Egypt’s debt market surged following the CBE’s move to raise interest rates by 200 bps. Foreign direct investment appears to have recovered, but still remain below its pre-2011 rates. The bank does believe that Zohr coming online in 2018 will help attract significant FDI.

On the fiscal side, the state’s take from taxes on goods and services is set to rise 41% in FY2017-18, making up 36% of total budget revenue, under the assumption that value-added tax will do most of the job. However, tax revenue is likely to fall below the government’s projections. The report suggests that while energy subsidies are expected to decline in FY2017-18, fuel subsidies will remain at the same previous levels.

The report expects inflation to come to about 20% by the end of 2017, partly on the back of the interest rate hike, which analysts say will take some time to take effect. If this does happen, GDP growth is projected to continue at a pace of 4%.