Egypt’s government is set to kick off its latest privatization drive later this year, and the authorities are likely to retain a relatively high degree of control over the economy. This in turn may have an impact in two areas: a) holding back Egypt’s long-run growth prospects, thereby raising public debt concerns, and b) IPO prices ranges may get fixed at the very top-range, which may lead to some disappointments and pull the market into a negative cycle.
The devaluation of the pound in March will help to correct external imbalances but at the cost of rising inflation. We expect the central bank to hike interest rates by a further 150bp, to 12.75%, by the end of this year which is more tightening than the consensus currently expects.
We rate Egypt’s credit fundamentals as stable to positive and expect the country’s existing buffers and prudent macroeconomic policies to balance the challenges stemming from a difficult global backdrop due to the war in Ukraine. Starting soon, Egypt will benefit from an LNG pipeline going online towards Europe.
Egypt is the world’s top wheat importer. High agricultural prices would increase the country’s grain bill and create an additional fiscal burden through higher food subsidies. This might dent the government’s budget deficit reduction plans. The country has a GDP growth ratio which comes on the back of a fast-growing population.
Egypt’s external debt, at 36% of GDP, is lower than the average of its peers in the same rating range. The central bank’s gross reserves stood at USD 41bn as of March, sufficient to cover six months of imports. The continuation of prudent policies is expected to lead to a declining path in the public debt ratios in the coming years. Reform fatigue, political tensions, widespread poverty and public resentment pose major idiosyncratic risks for the country.
GDP forecast 2024: 5.4 %