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Egypt Country Risk Report Q2 2015

Egypt Country Risk Report Q2 2015

Core Views

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
Automotives
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 ,%

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