EBRD trims Egypt 2022 growth outlook on inflation concerns: The European Bank for Reconstruction and Development (EBRD) has downgraded Egypt’s 2022 growth outlook due to rising food and energy price inflation caused by the conflict in Ukraine. The lender expects the economy to grow at a 3.1% clip this year, down from the 5.0% it had penciled in last November, according to its latest Regional Economic Update (pdf). The economy will then rebound in 2023, growing 6%, according to the bank’s figures.

Imported inflation is to blame: The EBRD attributed the downgrade to Egypt’s dependency on food and oil imports, which it says makes it more vulnerable to price hikes caused by the Russia-Ukraine war. “In Egypt and Tunisia especially, food and fuel subsidies (and/or price caps) might limit inflation for households, but create a burden for public finances,” the bank wrote. The government has already capped prices of unsubsidized bread and announced an EGP 130 bn economic support package since the war began in a bid to mitigate the impact of inflation on consumers.

Things aren’t looking good on the tourism and supply chain fronts either: “A drop in tourism as well as general supply chain bottlenecks and volatility could also affect important growth drivers,” the bank wrote , adding that Ukrainian and Russian tourists accounted for around 20% of arrivals in Egypt in recent years. Weaker tourism income could add further pressure on the exchange rate should the crisis become protracted, it warned. The Central Bank of Egypt has already allowed the EGP to depreciate against the USD in order to absorb part of the impact, falling some 15% in recent weeks.

The silver lining: The turmoil in the global energy markets could help Egypt realize its gas export ambitions as Europe searches for alternative sources of energy, the EBRD wrote, adding that this would happen only if “Europe engaged more actively to resolve current tensions and facilitate pipeline access.” Egypt is one of the countries that Europe is looking to to help solve its gas shortfall as it decreases its reliance on Russian supplies, and Oil Minister Tarek El Molla has pointed to the possibility of us exporting more LNG given elevated energy prices across the board on the back of the war.

Shoukry lines up French backing

Foriegn Minister Sameh Shoukry called on the EU for support, asking French counterpart Jean-Yves Le Drian on a call for economic and political support as Egypt grapples with fallout from the war in Ukraine. Shoukry is asking France, which holds the presidency of the EU council, to back Egypt in talks with both EU and international financial institutions, according to a Foreign Ministry statement.

EU financial support could be the latest in a stream of international fiscal support. We are already in talks with the IMF on a new program, under which the IMF will provide the Egyptian government with support. Saudi Arabia deposited USD 5 bn with the Central Bank of Egypt (CBE), as our Gulf neighbors move to help shore up our finances amid global fallout from Russia’s war in Ukraine, prior to which we received support from both the UAE and Qatar.

Foreign Ministry could budget for oil at up to USD 85

The Finance Ministry could set oil prices at USD 80-85 a barrel in the FY 2022-2023 budget, Vice Minister of Finance Ahmed Kouchouk told CNBC Arabia (watch, runtime: 1:25), suggesting the ministry closely monitoring market dynamics as it works on the new budget.

Analysts are expecting Brent to remain above USD 100 a barrel for the remainder of this calendar year as the spillover effects from the Ukraine conflict continue to weigh on an already tight market. In its latest forecast, Goldman Sachs lowered its Brent projections by USD 15 to USD 120 per barrel through 2H 2022 and currently expects prices to average USD 110 in 2023.

BACKGROUND- The current FY2021-2022 budget had assumed an average Brent price of USD 60, well below the prices it has reached since the start of the Russia-Ukraine war. While we export natural gas and produce oil, we’re a net oil importer. Each barrel we import now costs the state about double what it had forecast in the current fiscal year’s budget.

Brent crude settled at USD 104.39 on Friday, posting its biggest weekly drop in over a decade after the US ordered an unprecedented release of its strategic reserves to temper prices, Bloomberg reports.