Egypt Quarterly- Q4 2018

• Growth outlook:  We maintain our Egyptian real GDP growth forecast of 5.5% this fiscal year, rising to 6.1% in FY 2019/20. Government investment and economic rebalancing will continue to be the engines of economic growth over the coming quarters, while private consumption and private sector activity will remain under pressure.
• Fiscal policy:  Despite the windfall from the development of its offshore gas fields, Egypt’s fiscal balance will remain under significant pressure over the coming quarters, and a balanced budget will remain a distant prospect.
• Balance of payments:  The Central Bank of Egypt (CBE) has released full-year balance of payments data for 2017/18 (July-June). The data shows an ongoing improvement in Egypt’s external position as a surplus of USD 12.8bn over the year led foreign reserves to rise to record levels of USD 44.26bn in June. Notably, the current account deficit declined by 58.6% y/y, and stood at -2.5% of GDP according to our estimates, compared to -6.5% the previous year. In 2018/19 we project that the deficit will narrow further, to -2.0%, aided by declining energy imports and ongoing growth in visitor numbers.
• Monetary policy:  As was widely expected, the Central Bank of Egypt (CBE) kept its benchmark interest rates on hold on September 27, marking the fourth consecutive meeting at which the MPC has taken no action. This keeps the overnight deposit and the overnight lending at 16.75% and 17.75% respectively. The monetary easing with which the year began (two cuts of 100bps each in February and March) has been put on hold as reform-related price pressures and wider concerns over emerging market volatility have outweighed the need to boost domestic private sector activity and curtail escalating government debt servicing costs.
• Egyptian pound:  We maintain our view that the Egyptian pound will remain fairly stable over the coming quarters, with some slight weakness through next year. We forecast an end-2018 level of EGP 18.00/USD, which would imply a modest depreciation from the EGP 17.91/USD at which it’s currently trading in the spot market. In 2019, we project a further depreciation to EGP 18.25/USD by year-end.

Egypt real GDP growth, % y/y

Source: Haver Analytics, Emirates NBD Research