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Egypt Country Risk Report Q2 2016

Egypt Country Risk Report Q2 2016

Core Views

2016 will be a positive year for the Egyptian economy as the currencystabilises and investment returns to the county.

The fiscal and net export position will improve significantly on theback of fuel subsidy reform. Subsidy cuts will likely be watered downif public unrest occurs on a significant scale, however the bulk ofreform will remain in place.

Hikes to domestic energy prices will push consumer price inflationback into 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 around the turn of the year. Westernpowers such as the US and EU have an interest in ensuring theNorth African country does not experience a more pronouncedeconomic and political crisis. However, it will be donations from theGCC which keeps Egypt afloat this year.

Major Forecast Changes

No major forecast changes.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Headwinds To Restrain Growth
Egypt’s economic growth will pick up over the coming quarters, however a beleaguered tourism sector and only marginal growth in fixed
investment will mean growth is far below potential and will do little to have a notable impact on unemployment.
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Position To Improve Slowly
Egypt's persistently high fiscal deficit will decline only slowly over the coming years and there are signs of policy slippage, which is
worrying for the country's outlook. We forecast the fiscal deficit to fall from 11.5% of GDP in FY2015 to 8.5% in FY2017 ensuring
continued pressure on diminishing reserves.
Structural Fiscal Position
External Trade And Investment Outlook
Devaluation Required To Avert BoP Crisis
Egypt's balance of payments position is facing a myriad of problems with lower tourism revenues, the termination of Gulf assistance and
a worsening trade balance all ensuring that a devaluation of the currency is needed to avert a balance of payments crisis in 2016.
TABLE: BREAKDOWN OF IMPORTS IN 2014
TABLE: BREAKDOWN OF EXPORTS IN 2014
Outlook On External Position
Currency Forecast
EGP – Substantial Depreciation On The Horizon
The Egyptian pound will depreciate by at least 10% over the course of 2016, most likely towards the end of the year, as the Central
Bank of Egypt’s willingness and ability to support the unit wanes. While resulting in higher inflation, a weaker currency will provide a fillip
for investment into the country and support fragile economic growth.
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Egyptian Economy To 2025
One Of MENA’s Outperformers
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 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Security To Remain Main Concern
Egypt's concerns on a domestic political level will be focused on the restive Sinai province and Islamist militancy in the region. We
believe the threat of widespread protests in similar vein to 2011 is unlikely.
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 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: MIDDLE EAST AND NORTH AFRICA – TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
TABLE: EXPORT AND IMPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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