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Investment opportunities face challenges due to current global economic outlook: HC Scarcity of foreign currency contributes to slow-down in economic activity and discouraging fresh foreign funds
HC Securities and Investment predicts a decline in the current account balance to 4.7% of GDP in fiscal year (FY) 2015/2016 and 4.4% in FY 2016/2017. HC Research Department attributed the decline to its projections of a negative gap in the petroleum balance since Egypt became a net importer of natural gas in 2Q15, as well as tourism receipts not reverting to pre-revolution level, and the modest growth in non-oil imports. The expected funding gap calls for restoring communication with international donors. Declines in the net international reserves (NIR), foreign currency shortage, and the balance of payments' (BOP) heavy reliance on external donors are cause for concern, according to HC's recent report. The report said the scarcity of foreign currency is contributing to the slow-down of economic activity and discouraging fresh foreign funds, as it raises doubts regarding profit repatriation and the overall investment environment. HC believes that ensuring a sustainable source of foreign currency requires multiple efforts to advance in parallel that would address monetary, structural, and planning reforms. The report noted that this can be done through reforms aimed at improving the investment environment. Consequently, HC believes reforms addressing the rising current account deficit are essential to secure a stable source of foreign currency. "Since the foreign exchange-rate policy affects both the current and financial account balance, we feel a rational and clear foreign exchange policy is a top priority," the report read. "A consistent exchange-rate policy of devaluation to the market-clearing rate is inevitable to absorb economic shocks". HC projects a further decline in the current account balance to 4.7% of GDP in FY 2015/2016 and 4.4% in FY2016/2017, mainly attributed to its projections of a negative gap in the petroleum balance, tourism receipts not reverting to pre-revolution levels, and the modest growth in non-oil imports. Furthermore, HC said the expected funding gap calls for restoring communication with international donors. According to HC's estimates, the official rate of the Egyptian pound against the dollar has been falling below the 95% confidence interval of its fair value since July and will continue deviating away from the fair value as devaluations are late. HC Securities and Investment is a full‐fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services.
