What does the Egyptian economy look like post float? Goldman Sachs, Standard Chartered, and Fitch all weighed in over the weekend on the future of the economy, updating their forecasts and predictions of where they see the EGP / USD exchange rate settling, FX inflows, and FX liquidity.

In context: The fresh forecasts came one week after the central bank moved forward with highly-anticipated reforms — floating the EGP and hiking rates by 600 bps — in efforts to boost FX liquidity in the banking system, clamp down on black market trade, and reignite investor confidence in the economy.

#1- Significant FX inflows around the corner: Egypt has delivered a “long-awaited inflection point” that is expected to attract portfolio inflows of over USD 50 bn, Standard Chartered MENA economist Carla Slim said in an interview with Bloomberg TV (watch, runtime: 4:13). The British multinational lender expects forthcoming Saudi investments of around USD 5 bn to flow into the country as the Ras El Hekma agreement becomes a “template” for further investments.

Inflows to peak this year? Goldman Sachs expects foreign direct investment to more than triple y-o-y to USD 33.5 bn in 2024, before falling back to USD 12.9 bn next year, economist Farouk Soussa wrote in a note seen by Enterprise. He also sees portfolio inflows growing over 16x from 2023 to USD 15 bn this year, before settling at USD 2 bn in 2025 and 2026.

#2- Exchange rate realignment: Standard Chartered now sees the EGP ending the year at 45 against the greenback on the back of the sizable USD inflows, Slim said. “So far what we’ve seen is an overshooting of the FX to about 50 levels. We’ve already started to see the currency retrace a little bit,” which suggests that “there are more volumes [of FX] in the markets,” she added. Fitch Ratings, on the other hand, expects “a broadly stable USD-EGP exchange rate for the rest of 2024,” it said on Thursday.

#3- External funding surplus: Goldman Sachs is penciling in a cumulative funding surplus of USD 26.5 bn through to 2027 — compared to previous projections of a funding deficit of USD 13 bn — as external financing arrives to the state coffers. The funding surplus is expected to reach USD 15.7 bn in 2024 before a deficit of USD 209 mn is incurred next year, followed by a USD 3.5 bn surplus in 2026.

#4- FX reserves to rise: Goldman Sachs sees gross FX reserves rising to c. USD 61 bn by the end of 2027, and is projecting an even greater jump in net reserves as deposits from GCC countries at the central bank are converted into equity for new projects.

#5- FX liquidity in banking sector to pick up: The banking sector’s foreign currency liquidity is expected to “improve significantly” following the float and as the country unlocks fresh financing from the UAE, IMF, and other lenders over the next few months, according to Fitch. As a result, the sector’s net foreign liabilities will “narrow significantly” in 2024 from USD 17.6 bn in January, the agency said, stopping short of providing a future estimate.

Tags: