Egypt’s reforms could shield the economy from covid-19 shocks -Moody’s: Egypt’s track record of economic reform commitment and strong FX reserves are expected to shield its credit rating from shocks caused by the covid-19 pandemic, Moody’s said in a credit opinion last week (pdf). The ratings agency says remaining committed to reform measures moving forward could help Egypt achieve “higher sustained growth” levels down the road. By continuing to narrow its current account deficit, the country “may also reduce the economy’s borrowing needs and shore up resilience to changing financing conditions,” Moody’s says.

FX reserves act as a bulwark against EM outflows: Meanwhile, a “broad domestic funding base” and the country’s strong FX reserves, which can cover six months’ worth of imports “provide buffers against significant capital outflows from emerging markets in the wake of the coronavirus pandemic,” the ratings agency said. Moody’s notes that Egypt’s banking sector is also acting as “a deep and stable domestic funding base” that will further support the country’s external liquidity.

On the flipside, Moody’s points to Egypt’s debt affordability as a major point of weakness that leaves the country’s credit profile “vulnerable to a sharp and sustained tightening in financing conditions.” Based on this weakness, Moody’s has scored Egypt’s fiscal strength at “ca” — the lowest score on its overall scorecard.

That said, the ratings agency expects our debt-to-GDP ratio to continue declining this fiscal year, even when accounting for the expected shock impact covid-19 will have on our growth and fiscal position. Moody’s forecasts general government debt as a percentage of GDP dipping to 82.6% in FY2019-2020, down from 84.2% in FY2018-2019, before rising again during the upcoming fiscal year to 83%.

Unemployment, inflation could drive down credit rating: The ratings agency says “social pressures” resulting from youth unemployment, inflation, and “lingering susceptibility to political event risks” continue to pose credit challenges, particularly as inflation would drive up the cost of government debt.

Egypt’s current account deficit is seen widening by the end of the current fiscal year on the back of tourism revenues and remittances falling sharply, which the agency says would “more than offset” the lower expenditure on oil as prices drop. Moody’s sees the current account deficit coming in at 4.5% in FY2019-2020 before narrowing again to 3.6% in FY2020-2021.

The impact of covid-19 will be most pronounced in the next fiscal year: The fall in tourism, coupled with disruptions in investment and trade, will drive down growth to 4.4% in FY2019-2020 and 2.7% in FY2020-2021, Moody’s says.

The government has revised downward its target GDP growth for FY2020-2021 to 3.5% from 4.5%, said Planning Minister Hala El Said, according to a cabinet statement. Projections for the current fiscal year have also been amended to 4.2%, downfrom 5.1% as the pandemic continues to weigh on the economy. The revised figures assume the worst will be over by June, but will be slashed another 30% if the crisis continues past that point, El Said noted.

Background: The Finance Ministry had said last week it would leave its projections for FY2020-2021 GDP growth unchanged from the assumptions it made when preparing the state budget before the covid-19 outbreak. According to the draft budget released at the time, the ministry said it would revisit the anticipated growth figures once the economic impact of the pandemic becomes clearer.

Railway projects could be placed on ice as disbursal of USD 1.8 bn in international funds are delayed: Some USD 1.8 bn in international loans earmarked for railway projects will not be disbursed until the middle of 2021 as lenders reprioritize financing in response to the covid-19 pandemic, Al Mal reports, citing informed sources. The Transport Ministry was hoping to access USD 1.5 bn in funding for the project to convert the 22-km Abu Qir-Alexandria railway into a subway before the end of 2020, and a further USD 300 mn to add additional tracks to several passenger lines. Lenders for the projects include the European Investment Bank, European Bank for Reconstruction and Development, the Asian Infrastructure Investment Bank and the French Development Agency.

Railway Authority land up for grabs: The National Railway Authority is hoping get a cash infusion to keep some projects on track through an estimated EGP 15 bn land offering for residential and commercial development, according to Al Mal. The offering from MOT for Investment and Projects, the authority’s investment arm, has received ministry approval to offer a mixed-use complex in in Mansoura, as well as land on Al-Tayaran street, in Dakahlia’s Talkha, and in Ramlet Boulaq, adjacent to the Nile City Towers.

Pharos Energy bails on consortium eyeing Shell Egypt assets: Pharos Energy has withdrawn from a consortium in the running to acquire Shell’s onshore assets in Egypt due to the collapse in oil prices, it said in a statement yesterday. Pharos was part of a consortium with Cheiron and Cairn Energy, which had moved to a second round of bidding to acquire Shell’s assets in the Western Desert. Egypt’s East Gas was invited to the next round of bidding which remains open.

The sale is unfortunately coinciding with one of the biggest oil crashes in history: Bidders are likely to reduce the value of their offers in light of the crash in oil prices which earlier this week saw US crude fall into negative territory for the first time in history.

Background: The Dutch oil giant had been looking to sell the assets for as much as USD 1 bn, a figure that now looks increasingly out of reach as the sector comes under increasing pressure from an unprecedented demand slump and a supply glut.

LEGISLATION WATCH- House approves EGP 10 bn additional provision for FY2019-2020 budget: The House of Representatives’ general assembly has approved the government’s request to allocate an additional EGP 10 bn in the FY2019-2020 budget to help the state fight the covid-19 pandemic, according to Al Mal. The proposal was approved bythe cabinetand the House Planning and Budgeting Committee earlier this week.

Cabinet and the House appear to have reached a middle ground on the tax exemption threshold under the Income Tax Act, setting it at EGP 8k, up from EGP 7k proposed by the government and EGP 9k suggested by the committee, according to Al Shorouk. The tax bands have also been changed from the last draft we saw to be as follows:

• Those earning between EGP 8-30k would be taxed 10%;
• Those earning between EGP 30-45k would be taxed 15%;
• Those earning between EGP 45-200k would be taxed 20%;
• Those earning more than EGP 200k would be taxed at 22.5%.

Parliament’s general assembly will take a final vote on the bill today.

Also approved in principle yesterday:

• An amendment to the Real Estate Tax Act to exempt unused land from being taxed and give cabinet the power to issue exemptions for some buildings;
• Amendments to the Emergency Law to give the presidency increased powers. The amendments earned committee-level approval earlier this week;
• A bill allowing the government to move ahead with its tax relief package to help companies cope with covid-19 repercussions if they commit to keeping all employees
• An amendment to the Pensions Act to include special bonuses as part of a variable salary, effectively raising the value of pensions.
• The new SMEs Act, which will include tax and non-tax incentives to support SMEs to go legit. The details of the final bill have not yet been made available but last we heard, there were debates on exempting all SMEs from all taxes for five years.

The Supreme Media Council has fined private daily newspaper Al Masry Al Youm EGP 250k over an op-ed penned by founder Salah Diab under the pseudonym Newton, the newspaper said. Diab had suggested in the column that Sinai should be assigned a governor with expanded powers to better govern the peninsula. The council has ordered the paper to remove the piece from its website and issue an apology. AMAY is also required to suspend publishing Newton’s opinion pieces for one month. The council has also referred the case to the prosecutor general to decide whether further action is warranted.

Apicorp to increase callable capital eightfold: Arab Petroleum Investments Corporation (Apicorp) shareholders have given the go-ahead to increase the development bank’s callable capital to USD 8.5 bn from USD 1 bn to support investments in the energy sector, it announced in a statement (pdf). The lender will also bump up its authorized capital to USD 20 bn and subscribed capital to USD 10 bn. “The capital increase will enable Apicorp to fulfil its policy mandate by continuing to deliver sustainable impact-driven development projects and supporting investment activities,” CEO Ahmed Ali Attiga said. This comes a week after the bank reported a 17% increase in net profits to USD 112 mn in 2019.

STARTUP WATCH- Disruptech makes its first investment in two Egyptian companies: Disruptech, a USD 25 mn fintech fund recently set up by Mohamed Okasha, a former top exec at fintech player Fawry, has made its first investment in two Egyptian startups, Khaznaand Brimore, according to Menabytes. The fund is investing a six-figure USD sum, Okasha said, without disclosing the exact amount. Khazna will provide mobile financial services to Egyptians who do not have bank accounts, including a salary cash advance app, while Brimore serves local manufacturers and suppliers to access individual sales agents to market their products directly to consumers using mobile apps.