Beltone Financial Holding has expected in a recent research that fuel subsidies bill will rise to EGP 150bn in fiscal year (FY) 2017/18, up from EGP 115bn one year earlier. "We look for the full implementation of the fuel smart card system to better monitor consumption until the third round of petroleum subsidies cut in the first quarter (Q1) of FY 2018/19," the research firm noted. Meanwhile, Beltone expects growth to accelerate, surpassing the International Monetary Fund (IMF) target. "Back to normal production activity should push the flat economic performance, aided by a recovery in consumption. We expect GDP growth to accelerate to 5% in FY 2017/18, up from a stagnant 4% over the past three years." The research firm said growth reached 5.2% in H1 2017/18, up from 3.6% a year earlier driven by a 1.8% rise in exports, a 1.9% increase in investments, and a 1.6% rise in consumer spending. "We see knots loosening, thus allowing for higher sustainable economic growth. The real challenge we see here is the ability to achieve an inclusive economic growth, which will allow for the anticipated +6% GDP growth to trickle down to the citizens welfare across governorates," the research firm said. On the other hand, Beltone said that the practical implementation of the Investment Law, with the enforcement of its executive regulations in October 2017, will provide a catalyst for higher investment/GDP rate in FY 2018/19. Additionally, the approval of the Bankruptcy Law marks another key milestone in investment climate reform. The law allows companies more time and options for restructuring, supports settlements of commercial disputes outside of court, and simplifies bankruptcy proceedings. "We believe this will positively improve Egypt's ranking in the Ease of Doing Business report in 2019." Regarding investment and foreign direct investment (FDI), Beltone said that FDIs and megaprojects will continue to play a bigger role this year, as they expect a material pick-up in investment in FY 2018/19. "Reforms opened the door to the private sector involvement in a number of sectors, which diversifies investment opportunities. These include amendments to the Railway Law, which will be discussed in parliament soon, and the enacted Natural Gas Law." "We believe FDIs will have a higher contribution to this year's investment growth, as most of the private sector corporates are still recovering, following the immense changes induced to the business environment in 2017. Increasing appetite in the energy sector with the commitment to the repayment of arrears to international oil companies ($750m expected this quarter) and the cancellation of the fixed gas pricing for new contracts will support our FDI inflows estimate of $10bn in FY 2017/18. We note that the oil sector accounted for 90% of total FDIs in FY 2016/17." The research firm also expects reserves built-up to remain solid in FY 2017/18, despite the peak in fixed income inflows. "We expect reserves to reach $45.2bn," Beltone said. "The $4-5bn eurobond issuance, coupled with maintained financial support agreements, will counterbalance normalising fixed income inflows. We are not concerned with the pace of reserves built-up going forward, as the adequate shield will cater for the country's external liabilities." Beltone foresees a primary deficit of 1.1% of GDP in the current fiscal year, missing the government's expectations of a 0.3% surplus.
