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Egypt Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views 2016 will be a relatively positive year for the Egyptian economy, as the currency stabilises and investment returns to the county. The fiscal and net export position will improve significantly on the back of fuel subsidy reform. Subsidy cuts will likely be watered down if public unrest occurs on a significant scale, however, the bulk of reform will remain in place. Hikes to domestic energy prices will push consumer price inflation back into the double digits by the end of the year. Egypt's geopolitical importance will ensure that even if an IMF agreement is delayed for longer than expected, further foreign aid commitments will materialise around the turn of the year. Western powers such as the US and EU have an interest in ensuring the North African country does not experience a more pronounced economic and political crisis. However, it will be donations from the GCC which keeps Egypt afloat this year.

Table Of Contents

Egypt Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Very Gradual Economic Recovery8
Egypt's economic growth will pick up marginally over the coming quarters However, a beleaguered tourism sector and only marginal
growth in fixed investment will mean growth is far below potential and will have little notable impact on unemployment
GDP By Expenditure Outlook 9
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Large Deficits To Shrink Only Gradually11
Egypt's persistently high fiscal deficit will decline only slowly over the coming years, and there are signs of policy slippage which is
worrying for the country's outlook Indeed, rising political risks are likely to deter further subsidy cuts We forecast the fiscal deficit to fall
from 98% of GDP in FY2016 to 70% in FY2018, ensuring continued pressure on diminishing reserves
Structural Fiscal Position 12
TABLE: FISCAL POLICY 12
Monetary Policy 13
Drastic Measures To Support Pound13
Following the 150bps hike in interest rates in March, we believe the Central Bank of Egypt will be forced to hike interest rates further
over the coming months Our baseline scenario sees 50bps in additional hikes to the overnight lending rates before the end of the year,
bringing them to 1225% by the end of 2017
Monetary Policy Framework 13
Currency Forecast 14
EGP: Another Devaluation In The Next Year14
The Egyptian pound will depreciate by another 10% over the next twelve months as the Central Bank of Egypt's willingness and ability
to support the unit wanes While resulting in higher inflation, a weaker currency will provide a fillip for investment into the country and
support fragile economic growth
TABLE: BMI CURRENCY FORECAST14
Chapter 2: 10-Year Forecast 17
The Egyptian Economy To 2025 17
One Of MENA's Outperformers17
Egypt has a lot to look forward to with its many inherent advantages, including a strategic and cultural position in the world, a large and
growing population and an underdeveloped private sector providing ample room for expansion However, the highly uncertain political
outlook poses a key downside risk to our long-term growth forecasts
TABLE: LONG-TERM MACROECONOMIC FORECASTS 17
Chapter 3: Political Outlook 19
SWOT Analysis 19
BMI Political Risk Index 19
Domestic Politics 20
Political Risks To Rise As Economy Falters20
Opposition against the government in Egypt appears to be growing following the transfer of the two Red Sea islands to Saudi Arabia
Looking ahead, our expectation for further subsidy cuts, higher inflation and an economic recovery falling short of expectations all bode
for a further elevation in political risks At this stage, a repeat of the revolutions in 2011 and 2013 is unlikely given the army's crackdown
on protests
TABLE: POLITICAL OVERVIEW 20
Long-Term Political Outlook 21
Four Scenarios For The Coming Decade21
Egypt's transition to a fully fledged democracy is likely to take several years at least, and there is no guarantee that it will achieve this
goal Although the momentum for democratisation is strong, we cannot preclude a return to authoritarianism in some form Prolonged
uncertainty and instability would be negative for economic reform, potentially undermining Egypt's appeal as an investment and tourism
destination
Chapter 4: Operational Risk 25
SWOT Analysis 25
Operational Risk Index 25
Operational Risk 26
TABLE: OPERATIONAL RISK 26
Economic Openness 27
TABLE: TOP 5 IMPORT PARTNERS and PRODUCT IMPORTS, 2010-2014, USDMN 28
TABLE: FREE TRADE AGREEMENTS 29
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES30
Availability Of Labour 32
TABLE: MIDDLE EAST AND NORTH AFRICA - AVAILABILITY OF LABOUR RISK 33
TABLE: EGYPT'S TOP 10 SOURCE COUNTRIES FOR MIGRANT WORKERS34
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Tentative Stability, But New Risks Emerging37
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39
TABLE: MACROECONOMIC DATA and FORECASTS41

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