Fitch sees new IMF program, rate hike as Ukraine conflict raises pressure on gov’t finances: Lower tourism inflows, higher food prices and tighter financial conditions driven by the war in Ukraine will put pressure on Egypt’s fiscal position, increasing the likelihood of Egypt taking on new funding from the International Monetary Fund and a CBE rate hike, Fitch Ratings said in a note yesterday. “We now believe another funded IMF programme is likely and expect the CBE to raise the policy interest rate” when it meets on 24 March as the government looks to support its external position, the ratings agency wrote. It also suggested that Egypt could look to GCC countries for financing support.

Deficit ambitions on pause: “Food price inflation and higher interest rates could complicate efforts to reduce the general government deficit,” the ratings agency said. Vice Minister of Finance Ahmed Kouchouk said this week that the budget deficit won’t narrow as much as previously hoped, and now expects it to end the fiscal year at 6.9%, down from 7.2% in FY 2020-2021. The government had targeted a 6.7% deficit before the crisis in Ukraine erupted.

The problem: Russia’s invasion of Ukraine threatens the supply of some 80% of our wheat imports, as well as tourism inflows from two of our most important tourism markets in volume, flagging concerns from multiple financial organizations, including the IMF earlier this week. The spillover effect of grain price hikes is already apparent here at home, with global price hikes threatening to cost the government up to EGP 15 bn this fiscal year in additional wheat import costs and perhaps the same to buy more domestic wheat (as we note above). The government is also moving to control prices of unsubsidized bread and raise the purchase price of domestic wheat.

REMINDER- Egypt is not yet in talks with the IMF for a support program, both Planning Minister Hala El Said and IMF Director for ME and Central Asia Jihad Azour said this week.

More and more analysts are expecting an interest rate hike: Ahly Pharos also expects the CBE to hike rates by 150 bps, while EFG Hermes’s Mohamed Abu Basha is forecasting a 100 bps hike. Naeem Brokerage sees the central bank raising rates by at least 50 bps. The monetary policy committee will meet next Thursday, 24 March.