Optimistic forecasts THE POUND should be trading at around LE15.7 per dollar in the current 2017-2018 fiscal year and at LE15.3 per dollar next year, HC Securities and Investment, an investment bank, has forecast. In a note released on Tuesday, the investment bank advocated a gradual appreciation of the pound to eliminate overshooting by the first quarter of 2018, as “Egypt's current account starts to reflect more sustainable foreign currency inflows, mainly driven by the oil trade balance and tourism receipts.” Overshooting has continued eight months into the pound's floatation despite some $8.4 billion of portfolio inflows, said Sara Saada, chief economist at the bank. “While the overshooting could have initially been explained by short-term supply/demand dynamics, sizable portfolio inflows in recent months should have taken the pound closer to its fair value,” she said. HC believes the Central Bank of Egypt (CBE) is favouring an undervalued, yet stable currency over a volatile exchange rate, as evidenced by an increase in non-reserve foreign currency deposits to $5.86 billion by the end of May. “Though we understand the negative implications associated with the latter, such a policy, in our view, is not helping with containing inflation and partially limits the transmission mechanism of the bank's monetary policy tools,” HC said. The investment bank revised its GDP growth estimates for Egypt to four per cent for fiscal year 2016-17, from 3.5 per cent previously, and to 4.4 per cent in the current fiscal year, up from a previous estimate of four per cent. In fiscal year 2018-19, HC expects real GDP growth to accelerate to 4.9 per cent on the back of a recovery in private consumption as inflation moderates and unemployment drops. Making the most of the sun ELEVEN solar energy plants producing 500 megawatts of electricity will be built in Aswan in Upper Egypt at an estimated cost of $730 million, Minister of International Cooperation and Investment Sahar Nasr recently announced. Six international and Egyptian private-sector companies will build the new plants. The International Finance Corporation (IFC), the World Bank's private-sector financing arm, will be providing $660 million of the financing cost. The project reflects the confidence of international financial institutions and development partners in the Egyptian economy and its future growth prospects, especially after the steps taken by the government towards economic reform, including the structural reforms in the energy sector which make it more competitive, Nasr said, who also holds the position of governor representing Egypt at the World Bank Group. The funding by IFC is part of a larger $2 billion project to produce solar energy in Egypt which involves the European Bank for Reconstruction and Development and a number of international companies. The project also reflects Egypt's commitment to the Paris Agreement on climate change and is part of a plan to convert Egypt into an energy hub for the Middle East and North Africa, producing 22 per cent of Egypt's energy needs by 2022, the Ministry of Investment said. A stable outlook MOODY'S, the international credit ratings agency, last week reaffirmed Egypt's stable outlook and B3 credit rating. The agency indicated that progress in implementing economic reforms would reduce the nation's fiscal and external vulnerabilities and forecast that the state's budget deficit would shrink to three per cent of GDP by the end of 2020, with exports expected to rise over the coming period. The agency said the International Monetary Fund's (IMF) review of Egypt's economic reform programme had been credit positive. It expects the government's fiscal deficit to narrow to 9.5 per cent of GDP by the end of the current fiscal year, down from 11 per cent last year. It also expects an improvement in the debt-to-GDP ratio to 86.5 per cent from 95 per cent over the same period. The IMF's executive board recently completed the first review of Egypt's economic reform programme and approved the disbursement of the second tranche of $1.25 billion of Egypt's $12 billion loan. A B3 rating indicates Egypt is likely to meet its payment obligations. Earlier this month, credit ratings agency Fitch also reaffirmed Egypt's credit rating at B with a stable outlook.
