Egypt Country Risk Report Q1 2016
Core Views
2016 will be a relatively positive year for the Egyptian economy, as the currency stabilises and investment returns to the country.
The fiscal and net export position will improve significantly on the back of fuel subsidy reforms. Subsidy cuts are likely to be watered down if public unrest occurs on a significant scale. However, the bulk of reforms will remain in place.
Hikes to domestic energy prices will push consumer price inflation back into the double digits by year-end.
Egypt’s geopolitical importance will ensure that even if an IMF agreement is delayed for longer than expected, further foreign aid commitments will materialise around the turn of the year. Western powers such as the US and EU have an interest in ensuring the North African country does not experience a more pronounced economic and political crisis. However, it will be donations from the GCC which keeps Egypt afloat this year.
Parliamentary elections in Q415 will result in a fragmented legislative with minimal Islamist presence.
Major Forecast Changes
We now expect sharper depreciation in the Egyptian pound over the coming year, reaching EGP8.8000/USD by end-2016.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Voter Apathy Clouds Democratic Mandate
- The first round of the parliamentary election in Egypt was a non-event for a real return to democratic governance in Egypt as turnout
- was low and all major candidates were broadly supportive of the President.
- TABLE: POLITICAL OVERVIEW
- Long-Term Political Outlook
- Four Scenarios For The Coming Decade
- Egypt's transition to a fully fledged democracy is likely to take several years at least and there is no guarantee it will achieve this
- goal. Although the momentum for democratisation is strong, we cannot preclude a return to authoritarianism in some form. Prolonged
- uncertainty and instability would be negative for economic reform, potentially undermining Egypt's appeal as an investment and tourism
- destination.
- Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Fixed Investment To Drive Expansion
- Egyptian economic growth will accelerate over the coming quarters on the back of low base effects, relative political stability and
- commitment to necessary economic reform.
- GDP By Expenditure Outlook
- TABLE: COMPONENTS OF GDP (% OF TOTAL)
- TABLE: PRIVATE CONSUMPTION FORECASTS
- TABLE: GOVERNMENT CONSUMPTION FORECASTS
- TABLE: FIXED INVESTMENT FORECASTS
- TABLE: NET EXPORTS FORECASTS
- Fiscal Policy And Public Debt Outlook
- Deficit To Decline, But Government Forecasts Too Optimistic
- Egypt's persistently high fiscal deficit will decline over the coming years, but will fall short of the government's forecasts. Further subsidy
- reform and an improving economy will result in higher tax receipts, an area which has potential for further increases with the reform of
- income tax likely over the coming years.
- TABLE: FISCAL POLICY
- Currency Forecast
- EGP - Still Further To Fall
- The Egyptian pound will depreciate further over the course of 2016 as the Central Bank of Egypt's willingness and ability to support the
- unit wanes. A weaker currency will bode well for investment into the country and support fragile economic growth.
- TABLE: BMI CURRENCY FORECAST
- Monetary Policy
- Disinflation Now Over
- Inflation in Egypt will head gradually higher over the coming quarters as a weaker currency increases the costs of imports. Furthermore,
- we expect additional subsidy cuts in 2016 as the government tries to reduce the fiscal deficit.
- TABLE: MONETARY POLICY
- Chapter 3: 10-Year Forecast
- The Egyptian Economy To 2024
- Policy Uncertainty Weighs On Outlook
- Egypt has a lot to look forward to with its many inherent advantages, including a strategic and cultural position in the world, a large and
- growing population and an underdeveloped private sector providing ample room for expansion. However, the highly uncertain political
- outlook poses a key downside risk to our long-term growth forecasts.
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: OPERATIONAL RISK
- Education
- TABLE: MIDDLE EAST AND NORTH AFRICA - EDUCATION RISK
- Government Intervention
- TABLE: MIDDLE EAST AND NORTH AFRICA - GOVERNMENT INTERVENTION RISK
- Chapter 5: BMI Global Macro Outlook
- Global Outlook
- Exit The Dragon
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
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