EgyptKey take-awaysMacroeconomic updateTrip notes

10 October 2022

Squaring the Circle

In brief

  • We spent the week of 25th – 29th September in Cairo meeting policymakers; financial services’ professionals, the media and multilateral institutions. Amid the global economic fallout, our primary task was to pick any white smoke, if any, in Egypt’s macroeconomic shape. This note highlights our 5 take-aways from our Egypt trip.

 

  • Egypt is targeting to start an IMF program latest November 2022, and the impression we have is that the country’s exchange rate mechanism is the remaining hurdle in the discussion.

 

  • The rising inflationary environment has seen the government increasing its targeted social assistance programs in FY23 to protect the most vulnerable households

 

  • We estimate gross external financing in FY23 at USD 34.7bn. That notwithstanding, the projected FY23 current account deficit (USD 16.6bn) is mainly funded with the expected USD 10.0bn foreign direct investment, based on Ministry of Finance baseline.

 

  • The twin combination of a global rate tightening stance and negative spill over of an FX rate policy shift is a perfect setup for a rate tightening tilt in the final MPC meeting of the year to be held in November 2022.

 

  • We see inflation normalization, exchange rate adjustment, and IMF program, in no particular sequencing, as triggers for local-currency attractiveness.