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Thursday, 4 October 2018

Egypt growth momentum to continue in 2018-19, says IIF

Egypt growth momentum to continue in 2018-19, says IIF: Egypt’s growth momentum looks set to continue into 2019, with GDP growth projected to accelerate to 5.6% next year from 5.2% in 2018, according to a MENA report from the International Institute of Finance (IIF) (pdf). This growth will largely be supported by higher tourism receipts and rising natural gas production, with expectations that gas exports will begin in 2019. The IIF is a global trade group for the financial industry, with more than 400 members in 70 countries.

Debt dynamics in Egypt to improve: “The gradual fiscal consolidation underway combined with further pickup in real GDP growth underlie our projected steady decline in the public debt-to-GDP ratio,” the IIF said. While interest payments and debt service has increased, these are likely to be offset by continued reforms such as cutting subsidies and lowering the budget deficit. The IIF sees the deficit narrowing to 8.4% of GDP in FY2018-19, with a primary surplus of 2.1% of GDP.

Limited risk of contagion from EM sell-off: The report notes that contagion from Turkey and other emerging markets has been limited. This is a far cry from another report earlier in September, which put Egypt as one of the MENA countries most at risk of EM contagion on the basis that it is a net oil importer. That report did not appear to factor in gas exports, which this report does.

More needs to be done for the private sector: The report’s most glaring criticism is that Egypt has still much to do to bolster the private sector. It says that Egypt’s economy “remains shackled by a public sector that is bloated, inefficient and unresponsive to market signals. …Egypt needs to make the economy more responsive to market forces and empower the private sector. Laws and regulations governing business and investment need to be overhauled and brought in line with best practices in successful emerging economies.”

And on the EGP, the IIF sees that while the FX rate has held steady at around EGP 18 per USD 1, the “real effective exchange rate is undervalued,” adding that, “Improved competitiveness from the sharp depreciation in November 2016 and structural reforms continues to boost exports of goods and services, particularly tourism, and restrain imports, leading to narrower current account deficits, which we expect to narrow further to 2.6% of GDP in 2019.”

As for the overall MENA assessment, the IIF repeated projections that GCC countries will drive regional growth on the back of higher fuel prices.

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