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IMF to remain involved in Egypt's reform, financing needs remain threat: Standard Chartered Bank foresees inflation averaging 11.1% in FY 2019/20, further interest rate cuts by CBE
The International Monetary Fund (IMF) will remain involved in Egypt through its reform process, through a non-funded line such as a Precautionary and Liquidity Line (PLL) or a stand-by arrangement, which would be a comfort to investors, according to report issued by Standard Chartered. The report indicates that Egypt has continued to improve the macroeconomic fundamentals under the IMF's Extended Fund Facility (EFF), which concludes in the second half (H2) of 2019. Meanwhile, growth has picked up to 5% supported by strong investment growth and increased competitiveness.
Moreover, an improving business environment and capital spending should support growth at current levels medium-term.
In regards to fiscal and monetary policies, the report indicates that the government is on track to deliver expenditure-led fiscal consolidation of 5% of the GDP after three years under the IMF programme, bringing down debt levels by 17% to a likely 86.3% in June 2019 from 103.5% in June 2017.
Furthermore, Standard Chartered believes that stronger tourism and remittance flows have contributed to curbing the current account deficit, which would also further benefit from the increase in gas exports as the mammoth Zohr gas field goes into full production.
On the monetary front the report foresees further interest rate cuts by the Central Bank of Egypt (CBE) on the back of slowing inflation. The bank forecast inflation to average 11.1% in fiscal year (FY) 2019/20.
Financing needs remain a drawback
According to the report, Egypt's debt levels remain high compared to its single B peers – investment grade credit rating – adding that to the country's large ongoing government financing needs of 32% of the GDP per annum ($100bn).
Additionally, Egypt's external financing needs are also high in FY 2018/19 with $9.5bn in dues – mainly deposits from Gulf Cooperation Council countries.
However, the report expects these deposits to be rolled over, though there is no confirmation of this yet.
Finally, Standard Chartered believes that Egypt's bonds will outperform its peers, supported by the country's improving fundamental metrics.
