Egypt’s macro picture in 2021, according to Beltone: The coming 12 months will be characterized by solid economic growth, low inflation and strong investor appetite for Egyptian debt, Beltone Financial said in its annual Macro and Strategy research note. Stimulus measures pushed out by the central bank and the Finance Ministry in response to the pandemic will help normalize business conditions in 2021, resulting in improved PMI readings, more private sector investment, and stronger FX inflows, it said. Key takeaways from the report:

The economy is expected to grow 3.5% this fiscal year, down only slightly from 3.6% in FY2019-2020, but two percentage points below pre-covid levels. Beltone’s forecast is close to the government’s recent upward revision for FY2020-2021 growth, and is in line with forecasts from the IMF and Deutsche Bank. Fitch Solutions, meanwhile, expects Egypt’s GDP to grow at a 3.2% clip in calendar year 2021 before accelerating to 5.6% in 2022. The research firm now forecasts a quicker-than-expected global economic recovery in 2021 as the covid-19 vaccine is distributed, according to Ahram Online. The government forecast a growth rate of 2.8-4% in FY2021-2022.

Egypt’s current account deficit will continue to widen in FY2020-2021 on the back of a USD 5 bn drop in tourism revenues, which will remain weak as the second wave continues to take hold in Europe. The bank expects the deficit to reach USD 12.6 bn in FY2020-2021, up from USD 11.2 bn over last fiscal year.

The budget deficit will increase only marginally this fiscal year to 8.2% of GDP from an estimated 7.9% in FY2019-2020. “Fiscal buffers have provided economic stimulus with a minimal impact on the budget” and the government “remains broadly on track” to meet its deficit reduction targets, it said. Finally, Beltone sees Egypt’s debt-to-GDP at 90.3% in FY2020-2021, up from 80.5% two years earlier.

Inflation will remain below the central bank’s 9% (+/- 3%) target range, averaging 4.8% throughout the remainder of the fiscal year and rising only as we enter into FY2021-2022 and as the CBE further cuts interest rates, Beltone said. “Record low international commodity prices, a stronger EGP, and base effect throughout 2020 have all provided a buffer to domestic inflationary pressure,” Beltone says, noting that price growth could begin to pick up in 3Q2021 due to the global vaccine rollout and higher commodity prices that could accompany a potential detente between China and the incoming Biden administration.

With low inflation, Beltone believes the CBE will cut rates by at least 100 bps next year. Despite this, sovereign treasury yields will stabilize “at a premium” to the lending rate, keeping yields attractive to foreign investors, the investment bank added.

The EGP looks set to remain strong, stabilizing at EGP 15.78 to the greenback in 2021 and growing stronger over the next five years.

Government-led and central bank support, coupled with reduced natural gas prices, will promote a recovery in capex by the end of 2021, the investment bank said. A recovery in capex lending will need private demand to continue growing, as this remains key to unlocking Egypt’s capital spending potential, it added.