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Wednesday, 18 October 2017

Fuel prices, VAT rate won’t rise this year; repo agreement to be renewed -El Garhy

The Ismail government has no intention to raise fuel prices this year and it is not going to hike the rate of the value-added tax, Finance Minister Amr El Garhy said yesterday in an interview with Reuters. “People have to be sure that we have a strong macro/fiscal consolidation… That would basically facilitate the decision making process for investors to come into the country,” he said.

The finance minister also confirmed that Egypt’s financing agreement with global banks, secured as part of a repurchase (repo) transaction in 2016, is expected to be renewed this year. The USD 2 bn in repo funding was secured last November against USD-denominated sovereign bonds issued in a private placement and are listed on the Irish Stock Exchange. El Garhy hinted that the funding amount could be increased with the renewal, saying “it depends on the amount of the haircut, or discount. I think it will be improved. Last year it was 30%. I think this will improve this year and the discount could be only 25%, and that reflects improvement in the risk profile of Egypt.” The consortium of international banks with which Egypt had signed the agreement had offered last month to extend the financing agreement to USD 5 bn with a five-year maturity.

Separately, El Garhy also confirmed plans to issue USD 3 bn and EUR 1 bn worth ofeurobonds, but said that no decision has been made on the timing of the issuance, “but most probably we start at the beginning of the year.”

Analysts expect growth to come in below government projections: The finance minister also said that with a focus on tourism, agriculture, and technology, the plan is to hit a “steady” 6% GDP growth rate over the next five-to-seven years starting from FY2018-19. Read that against a Reuters poll out yesterday that suggests the market expects growth to clock in at something closer to 4.4% in the current state fiscal year. The expectation is “well below government projections of 5.0-5.25%” and the IMF’s of 4.5%. GDP growth in FY2018-19 is expected to be 4.6%, the poll found. “Our forecast for GDP growth … reflects robust growth in exports, stronger industrial production, rising natural gas production and recovering tourism, though high costs remain a challenge for the private sector,” said Maya Senussi, a senior economist at Oxford Economics. The Reuters poll also expects core inflation to settle at 15% in FY2017-18 and drop to an average of 10% a year after.

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