Egypt Country Risk Report Q2 2015
2015 will be a relatively positive year for the Egyptian economy asthe currency stabilises and investment returns to the county.
The country's fiscal and net export position will improve significantlyon the back of fuel subsidy reform. Subsidy cuts will likely be watereddown if public unrest occurs on a significant scale; however, the bulkof reform will remain in place.
Hikes to domestic energy prices will push consumer price inflationback into the double-digits by the end of the year.
Egypt's geopolitical importance will ensure that even if an IMFagreement is delayed for longer than expected, further foreign aidcommitments will materialise. Western powers such as the US andEU have an interest in ensuring the North African country doesnot experience a more pronounced economic and political crisis.
However, it will be donations from the Gulf Cooperation Council thatkeep Egypt afloat this year.
We do not expect an IMF deal in 2015, as the economic rationalehas waned somewhat since the influx of foreign aid, and becauseit is politically unpalatable at present.
Parliamentary elections in Q215 will result in a fragmented legislativewith minimal Islamist presence.
Major Forecast Changes
We noWexpect sharper depreciation in the Egyptian pound overthe coming year, reaching EGP8.000/USD by end-2015.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks To Outlook
- Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Sinai To Remain Key Threat
- The latest attack on the Egyptian military in the Sinai Province underlines the key threat to Egypt's security. We do not expect the
- militant group to gain a foothold in the rest of the country and expect the damage to the wider economy to be relatively limited.
- Table : Politic al over view
- 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 that it will achieve this
- goal. Although the momentum for democratisation is strong, we cannot preclude a return to authoritarianism in some form.
- Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Activity
- Reasons For Optimism Outweigh Risks
- 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.
- Table: GDP By Expenditure
- Fiscal Policy
- Rapid Improvement Ahead In Egypt's Fiscal Position
- The latest data underline our expectation for a rapid turnaround in Egypt's fiscal position. A combination of fuel subsidy reform and lower
- oil and wheat prices will reduce expenditure growth significantly. In addition, an improving economy will result in higher tax receipts, an
- area that has potential for further expansion in line with the likely reform of income tax over the coming year. We forecast Egypt's budget
- deficit to fall from 12.7% of GDP in FY2014 to 7.5% in FY2017.
- Table: FISCAL POLICY
- Balance Of Payments
- First Signs Of Improvement; Far More To Come
- Our expectation for a significant improvement in Egypt's external position is beginning to play out as fuel subsidy reform reduces import
- demand. With lower oil prices, greater political stability and further weakness in the currency, we expect the current account to return to
- surplus (albeit small) in FY2015 for the first time since 2008.
- Table: Current Account
- Exchange Rate Forecast
- EGP Heading To EGP8.000/USD By Year-End
- We expect the Egyptian pound to gradually depreciate over the course of 2015 as the Central Bank of Egypt (CBE)'s willingness and
- ability to support the unit wanes. With no significant levels of financial assistance from the GCC forthcoming this year, pressure on
- reserves will remain elevated.
- Table: BMI Currency Forecast
- Global Islamic Finance
- UAE To Cement Position As Regional Hub
- The UAE's Islamic banking sector will continue recording substantial growth as new government regulation increases its attractiveness
- to domestic and regional companies. While Malaysia will remain the global leader for several years, we expect the UAE to record higher
- growth rates. Beyond these two hubs, we see increasing potential for Islamic banking in Nigeria and Thailand.
- EGYPT Q2 2015
- Chapter 3: 10-Year Forecast
- The Egyptian Economy To 2024
- Policy Uncertainty Weighs On Outlook
- Egypt has a lot to look forward to given 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
- Availability Of Labour
- Table: MENA - Availability of Labour Risk
- Table : Egypt 's Labour Force Empl oyme nt By Sect or ('000)
- Table : Egypt 's Top 10 Source Countries For Migr ant Workers
- Crime Risk
- Table: MENA - Crime Risk
- Table: Egypt Crime Statistics
- Chapter 5: Key Sectors
- Table : Aut os Total Market - Hist oric al Data & Forec asts
- Food & Drink
- Table : Food Consumpti on Indic ators - Hist oric al Data & Forec asts
- Table : Soft Dri nks Sales , Producti on & Trade
- Other Key Sectors
- table : Oil & Gas Sect or Key Indic ators
- Table : Pharm a Sect or Key Indic ators
- Table: Infrastructure Sector Key Indicators
- Table: Telecoms Sector Key Indicators
- Table : Defe nce & Security Sect or Key Indic ators
- Table : Freight Key Indic ators
- Chapter 6: BMI Global Assumptions
- Global Outlook
- Weaker EMs To Weigh On Growth
- Table: Global Assumptions
- Table : Devel oped States , Real GDP Growt H,%
- Table : BMI VERSUS BLOO MBERG CON SENSUS REAL GDP GROWTH FORECASTS,%
- Table : Emergi ng Markets , Real GDP Growth ,%