Egypt Country Risk Report Q4 2018
Real GDP growth is set to accelerate in Egypt as exports and investment pick up – boosted by the country's fast-expanding gas sector. Non-hydrocarbon invest-ment and consumption will recover only slowly, as inflation and interest rates remain relatively elevated, keeping households and businesses under pressure.
Egypt's primary budget surplus will rise on the back of fiscal consolidation measures, however, high debt servicing costs will keep the overall budget in deficit. Despite being on a declining trend, the debt-to-GDP ratio will remain elevated, exposing the country to shifts in global investor sentiment.
The Central Bank of Egypt (CBE) will keep interest rates on hold in the near term as subsidy cuts fuel a temporary spike in inflation. We forecast just one more cut (late) this year – bringing the overnight lending rate to 16.75% – as dollar strength and rising oil prices encourage the CBE to maintain a cautious stance. We nevertheless expect the broader trend of gradual monetary easing to remain in place over the medium term, facilitated by improving fiscal dynamics and stabilising prices.
The Egyptian pound is likely to remain broadly stable in the coming months, depreciating only slightly on the back of rallying oil prices and US dollar strength.
President Abdel Fattah el-Sisi may move to extend or abolish presidential term limits in the next few years. Our core view would be for this process to pass with limited public opposition – although if matched against a backdrop of still-dire economic conditions, widespread protests could not be ruled out.
Political repression will fuel popular discontent and raise potential for widespread unrest in the years ahead, especially should economic improvements fall short of expectations.
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