Egypt Country Risk Report Q1 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, %

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.