A look back at the Egyptian economy over this past year

The defining story of 2024 in Egypt was the USD flows, both into and out of the country. The year began with a grim outlook for the balance of payments, marked by rising external debt, a trade deficit skewed in favor of imports, dwindling remittances due to a huge gap between the official and unofficial exchange rates, and declining revenues from the Suez Canal due to the disruptions in Red Sea navigation.

We rang 2024 in with a parallel market spiraling out of control, with the EGP changing hands at a record low 70 and beyond to the USD, while the official rate sat at 30.95. This came amid an FX shortage that saw goods stuck in ports and investors wary of the Egyptian market. January and February also saw murmurs of an expanded IMF package.

It wasn’t just the parallel market that reflected how dire Egypt’s FX crunch has gotten: The FX shortage was also felt in the power outages that hit the entire country from July 2023 to mid-July 2024, as the government struggled to secure the FX resources needed to import the needed gas supplies to compensate for the decline of domestic production.

Getting the ball rolling: In late February, the Madbouly government announced that it inked a USD 35 bn agreement with ADQ, giving the Abu Dhabi wealth fund and longtime investor in Egypt the development rights to Ras El Hekma on the North Coast. The transaction provided Egypt with much-needed foreign currency reserves and set the stage for what’s to come.

Then came D-Day: On Wednesday, 6 March the central bank announced that it would “allow the exchange rate to be determined by market forces.” The announcement came after a surprise monetary policy meeting that saw it hike interest rates by 600 bps. The EGP briefly slipped past the 51 mark against the USD last week for the first time, before stabilizing at an average of EGP 50.92 to the greenback.

And an expanded IMF package: That Wednesday also saw the Madbouly government unveila super-sized USD 8 bn IMF package. Since then Egypt received three of its USD 820 mn tranches from the Fund and we’re currently awaiting another USD 1.2 bn — the biggest tranche of the program so far — after the Fund and Egyptian authorities reached a staff-level agreement on the fourth review of the program.

The expanded IMF package helped the government set its priorities straight, with the latest statement from the Fund placing an emphasis on boosting tax revenues, accelerating the privatization program, improving the business environment, and reducing the state’s footprint in the economy — the Finance Ministry introduced an EGP 1 tn public investment cap for all state entities to help create space for private players.

It wasn’t just the IMF that lent us a helping hand: Shortly after we secured the expanded IMF package, the EU pledged a EUR 7.4 bn package of loans, grants, and investments through to 2027. The EU approved the disbursement of an EUR 1 bn macro-financial assistance package earlier this month to “accompany (Egypt’s) reform agenda.” The World Bank also said it will provide Egypt with a USD 6 bn financing package over the next three years — USD 3 bn will go to the government to support its economic and structural reforms, social protection programs, and its green economy transition and the other half will be distributed through the group’s private sector arm, the International Finance Corporation IFC, and will go to the private sector. The World Bank greenlit USD 700 mn of the funds in June.

The float allowed Egypt to regain significant foreign currency inflows, with a substantial portion of remittances from Egyptians abroad returning to the formal banking system. For the first time since 2022, the CBE and the banking sector achieved a surplus in net foreign assets, driven by rising remittances and the return of foreign investments in government debt instruments. Egypt’s net foreign reserves have increased by around USD 11.6 bn in the months since the government announced the Ras El Hekma agreement and the float of the EGP and FX liquidity returning to the official banking system, paving the way for more international funds. In February — the month immediately before the float — foreign reserves stood at USD 35.3 bn. Net foreign reserves sat at USD 47.0 bn at the end of November 2024.

Remittances also saw a big jump after Egyptians abroad resumed sending money through official channels after the float of the EGP. Remittances from Egyptians abroad hit USD 23.7 bn in the first ten months of 2024, up 45.3% y-o-y.

A return to normalcy: Following the float the government started paying back overdue arrears and banks increased their foreign currency credit card limits.

Localization was also a big theme: The government has taken several measures to localizethe production of key sectors throughout 2024, targeting 23 priority industries and aiming to trim reliance on imports for industrial inputs, while some Egyptian companies expanded production and increased market shares in response to calls to boycott foreign brands. However, manufacturers are still heavily dependent on costly imports for raw materials, putting a huge strain on the state’s FX coffers. Nevertheless, manufacturers still bear the expensive transport fees and depend on imports to source the required production imports.

** We take a look back at the localization push throughout 2024 in this week’s Inside Industry to be published in today’s EnterprisePM.

WHAT’S ON THE HORIZON FOR 2025-

Geopolitics and protectionism cloud the outlook for the year to come: Geopolitical risks and the return of Donald Trump to the White House, with his promised protectionist policies, are two key factors framing the outlook for next year, according to a note from Al Ahly Pharos. Ongoing regional tension is projected to continue weighing on Suez Canal revenues and gas supplies from Israel, while a potential escalation of the Russia-Ukraine war could complicate current account balances for commodity-importing nations.

What does Trump’s return to the White House mean for us? Trump’s anticipated fiscal expansion — via tax cuts and trade protectionism — could strengthen the USD, sparking inflationary pressures and forcing the US Federal Reserve to reconsider the pace of rate cuts.

Analysts split on rate forecast: Interest rates are expected to drop to 12-13% by the end of 2025, Prime Minister Moustafa Madbouly told investors in a meeting on Thursday. Some analysts expect a modest 300-400 bps cut over 2025, while others see the CBE slashing rates by 800-1k bps.

Inflation to trend downward: Analysts see inflation easing to 16-24% in 2025, supported by a favorable base effect. Annual headline urban inflation dropped a fullpercentage point to 25.5% in November.

The EGP’s exchange rate against the USD remains a wildcard. Most analysts expect the EGP to settle at EGP 53-58 against USD by the end of 2025. However, economist Hany Tawfik sees the EGP potentially weakening further to 60-70 per USD, fueling inflationary pressures.

Meeting debt obligations with FDI and asset sales: Egypt’s external obligations are estimated to sit at USD 33.2 bn in 2025 and USD 55 bn in total until the end of 2026, according to Al Ahly Pharos. Meeting these liabilities will require substantial FDI inflows or additional borrowing, making large FDI transactions and asset sales critical for short-term economic stability.

Structural reforms hold the key: Al Ahly Pharos’ note emphasized the need for structural reforms to address Egypt’s current account and budget deficits. Priorities include a “more level ground for both public entities and the private sector, setting a stable tax policy, revising energy pricing for the industrial sector especially exporters, and enhancing governance and predictability of economic policies,” the note reads.

Editor's note: The story was edited on 30 December 2024 to note that Egypt's total external obligations are estimated to sit at USD 55 bn in total until the end of 2026, according to a research note by Al Ahly Pharos seen by EnterpriseAM.