Morgan Stanley see remittances, FDI cushioning Egypt from energy shock

Morgan Stanley has turned more constructive on our external position, arguing that record remittances, resilient tourism, stronger FDI prospects, and a flexible exchange rate have made the economy better able to absorb the regional energy shock than previously expected, the bank said in a research note (pdf). Even under its adverse high-oil-price scenario, the bank estimates that the country’s residual external financing gap would be around USD 3 bn in FY 2026/27 after scheduled multilateral financing.

Remittances are providing a powerful buffer: The bank expects remittances to reach around USD 46 bn in FY 2025/26, up from USD 36.5 bn in FY 2024/25, before easing moderately to USD 43 bn in FY 2027. Morgan Stanley raised its FY 2027 forecast from USD 38 bn as it now believes “part of the remittance surge is here to stay,” with the underlying level of inflows having “shifted higher on a durable basis.” The most recent data from the CBE shows even better results, where remittances reached a new high of USD 47.3 bn in FY 2025/26 (Also mentioned earlier in the issue).

In its base case, assuming oil averages USD 75 per barrel, Morgan Stanley sees a USD 14 bn current-account deficit and around USD 27 bn in FY 2026/27 external financing needs. About USD 23 bn in financing sources excluding portfolio inflows, combined with roughly USD 4 bn in scheduled multilateral financing, would broadly cover the gap. In its higher-oil scenario, with oil averaging USD 88 a barrel, the current-account deficit rises to USD 17 bn and the residual financing gap reaches around USD 3 bn after multilateral support.

The bank forecasts net FDI of USD 13-15 bn in FY 2026/27 across its scenarios, supported by around USD 19 bn in announced multi-year oil and gas investment programs. Asset sales could bring in a further USD 0.5-1.5 bn, excluding potential land transactions, but Morgan Stanley views privatization proceeds as upside rather than the foundation of its FDI outlook.

Morgan Stanley also lowered its December 2026 inflation forecast to 11.8% from 13.5%, after cutting its expected 3Q 2026 peak to 15.2% from 17.1%. It still expects the CBE to hold rates through year-end, though it says the likelihood of a 4Q 2026 rate cut is rising if inflation falls below 13%. The principal risk to its outlook remains a sharp reversal in portfolio flows: foreign holdings of Egyptian treasuries stand at an estimated USD 34 bn, leaving external buffers vulnerable in a severe global risk-off episode.

The EGP could remain relatively steady: The bank sees USD/EGP at 46-48 under rapid de-escalation, around 48-50 in its base case, and 50-52 if elevated oil prices persist. Even its more adverse oil scenario points to depreciation rather than a disorderly currency adjustment.

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