The USD 35 bn Ras El Hekma sale has led to a strong shift in Egypt’s economic outlook, with once bearish investors and credit rating agencies now changing their forecasts for the economy. The EGP has continued to recover on the parallel market following the announcement that Egypt’s FX reserves have seen a significant boost over the last few days from the first trances of money ADQ that some believe will help support the long-awaited currency devaluation and pave the way for further external financing and economic reforms.

HOW MUCH HAS THE GOV’T COLLECTED FROM THE SALE?-

On track to receive USD 15 bn within a week of the agreement signing: Egypt receivedUSD 10 bn for the Ras El Hekma agreement over the weekend — a USD 5 bn transaction was made on Tuesday followed by a similar one on Friday — Prime Minister Mostafa Madbouly announced in cabinet statements (here and here). A third tranche of USD 5 bn will be rolled from a previous UAE deposit at the CBE, Madbouly added. Meanwhile, the remaining USD 20 bn from the agreement will be deposited within the next two months — USD 6 bn of which will be from existing UAE deposits at the CBE.

Wait, there’s more? The government also received USD 520 mn on Thursday as part of theUSD 800 mn sale of seven historic hotels to Talaat Moustafa Group’s Icon Investments after the acquisition of a 51% stake in the hotels was finalized last month.

There’s also good news on the NDFs front: The EGP once again strengthened in the market for twelve-month non-deliverable forwards (NDFs) to reach 50 against the USD on Friday, down from the high fifties recorded last week, Asharq Business reported.

FITCH RATINGS WEIGHS IN-

Fitch sees Egypt’s FX liquidity improving following Ras El Hekma agreement: FitchRatings thinks that the agreement will “significantly improve” Egypt’s external financing position and its FX liquidity, paving the way for an adjustment of its exchange rate with a limited magnitude and a lower risk of currency overshooting. This would, in turn, enable Egypt to access an enhanced support package from the International Monetary Fund. “The scale of the FDI is large relative to Fitch’s expectations when we downgraded Egypt’s rating to ‘B-’, from ‘B’, with a Stable Outlook in November 2023,” the rating agency said on its website.

This doesn’t mean we’re off the hook just yet: Fitch sees Egypt’s macroeconomic situationremaining difficult for the next two fiscal years due to high inflation and weak growth levels, despite expecting annual inflation to cool in 2H 2024. The rating agency also sees pressing fiscal challenges to remain, expecting interest costs to exceed 50% of government revenues in FY 2024-25.

What else did they say? “The [Ras El Hekma agreement] provides much needed breathingroom for Egypt’s external finances and an opportunity to restore confidence, but the durability of the improvement will depend on the implementation of reforms to prevent renewed imbalances, such as a more flexible exchange-rate regime and policies to develop a more competitive export sector.”

ARQAAM CAPITAL’S VIEW ON EGYPT-

Arqaam Capital urges Egypt to act on FX adjustment: With the Ras El Hekma sale signedand the IMF agreement coming closer to fruition, Egypt should act on the FX adjustment in order to restore investors confidence, Senior Fixed Income Portfolio Manager at Arqaam Capital Fady Gendy said during an interview with Bloomberg. While Egypt has the needed “firepower” to go ahead with a full float, Gendy expects to see the EGP devalued to 40-45 against the USD.

What he said: “We've seen how delays in reforms by Egypt in the past have cost EgyptEurobond market access and have also weighed on valuations of Egypt's [USD] bonds. More recently, we've become more bullish on Egypt as we felt that the country has increased in its geopolitical importance.”

IMF AGREEMENT INCHES CLOSER AND CLOSER

Egypt’s agreement over an expanded IMF loan program is “close,” Yellen says: US Treasury Secretary Janet Yellen told Reuters on Thursday that Egypt is inching closer to finalizing an agreement with the International Monetary Fund over expanding its current USD 3 bn loan program without giving further details. She also said that the US is “supportive of the IMF helping Egypt.”

Remember: The IMF has been hinting that an expanded loan program with Egypt would beready soon, with IMF Managing Director Kristalina Georgieva saying that a finalized package would be ready “in a few short weeks” during the World Governments Summit in early February.

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